ECB stays the course despite falling inflation

Christine Lagarde, President of the European Central Bank, said to continue in this way “until we see inflation return to our medium-term target of 2%”.

By
Florentin Collomp

Published update

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European Central Bank President Christine Lagarde (here in May) explained that rates should reach their “cruising altitude” shortly. THILO SCHMUELGEN / REUTERS

Do not declare victory too quickly. The fall in inflation in May should not immediately lead the European Central Bank (ECB) to put an end to the increase in its key rates.

The inflation rate average fell in May to 6.1% in the euro zone, after 7% in April (and a peak of 10.6% in October). In Belgium, the rise in prices fell to 2.7% last month, to 2.9% in Spainand 6% In France (5.1% according to the INSEE measurement).

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“We will keep moving forward”

This still remains well above the ECB’s average 2% target. “We will continue to move forward, with determination and without discouragement, until we see inflation return to our medium-term target of 2%.“, assured Thursday Christine Lagarde, President of the ECB.

” READ ALSO – Twenty-five years after its creation, the ECB is playing its credibility against inflation

By “to advance», it is necessary to intend to continue the rise in key rates, already increased from -0.50% in July 2022 to 3.5% in May. These rates should reach theircruising altitudesoon, continues Christine Lagarde.

The pace of the upside should slow down before then. Market expectations are for another quarter-point rise on June 15, followed perhaps by another at the end of July. This would bring the ECB deposit rate to 4%.

Analysts worried

More and more analysts are worried that the ECB will continue this monetary tightening at all costs, while its effects on the economy are spreading in 18 months to two years.

The first signs of a credit crunch are showing up in investments. State debt costs have jumped. Not to mention the cold shower of high rates on the real estate market.

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” READ ALSO – Francois Villeroy de Galhau:Inflation would become a serious disease if it took hold»

The Governor of the Banque de France, François Villeroy de Galhau, who has so far supported the ECB’s turn of the screw, is beginning to worry about it. “The main question today is not so much how far we can go in rate hikes, but how much transmission of what is already in the pipe“, he said in a speech on May 22.

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