By Swann Collins, investor, writer and consultant in international affairs. Eurasia Business News, September 28, 2022

FRANKFURT, Sept. 28 – The European Central Bank (ECB) must continue to raise interest rates to stem inflation, even if it results in slowing growth, its president, Christine Lagarde, said on Wednesday morning.

“We need to bring inflation down to 2% in the medium term and we will do what we have to do, which is to continue to raise interest rates in the next meetings,” she told a conference in Frankfurt. “If we didn’t meet (our mandate), it would penalize the economy even more.”

She added that the first objective of the rate hikes was to achieve the neutral rate, which does not stimulate or slow growth.

For his part, Olli Rehn, one of the members of the Governing Council, said in an interview with Reuters that the neutral rate should be reached by Christmas.

With inflation expected to have reached a new all-time high in July, the European Central Bank (ECB) increased its policy rate by 0.5%, exiting its negative interest rates policy with the first increase in 11 years.

On September 8, the Governing Council of the ECB raised the three key interest rates by 75 basis points. 

Therefore, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 1.25%, 1.50% and 0.75% respectively, with effect from 14 September 2022.

On March 30, Christine Lagarde said “We know that we are going to see higher inflation this year, there is no doubt about that,”, during a conference organized by the central bank of Cyprus.

“We also see that some of the factors fueling inflation today, energy and food, are going to remain high. But we don’t foresee – don’t predict – that they will continue to rise more and more,” then added Lagarde.

The following months have shown how Chairman Lagarde misunderstood the situation.

On July 29 the European statistics agency Eurostat reported that the inflation rate in the euro zone in July reached 8.9% per year, reaching an all-time high. Among the countries with the highest inflation rate for the year are Estonia (23.2%), Latvia (21.3%) and Lithuania (20.9%).

On August 31st, Eurostat indicated that inflation in the euro zone was reaching a record 9.1% per year.

A falling euro currency, amid high inflation, a coming recession, a bear market in stock exchanges and the recent victory of national-convervative parties in Italy, could provoke the end of the euro zone in 2023.

Europe is in a very difficult situation now.

Read also : How to invest in gold

Gold prices were navigating between $ 1,614 and $ 1,626 per troy ounce today, losing near 6.69% over the past 30 days. Silver prices were negotiated between $ 17.93 and $ 18.31 per ounce today.

The exchange rate of euro/dollar was : 1 euro for 0.96 dollar

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© Copyright 2022 – Swann Collins, investor, writer and consultant in international affairs.