2023-09-25 17:58:01
FRANKFURT, Germany (AP) — The president of the European Central Bank said Monday that interest rates will remain high enough to restrict business activity for “as long as necessary” to beat back inflation. However, she was sympathetic to homeowners who have seen their mortgage payments skyrocket.
Christine Lagarde said interest rates will remain high because upward pressure on prices “remains strong” in the 20 countries that use the euro as their currency.
“Strong spending on vacations and travel” and rising wages were slowing the decline in price levels, even though the economy remains sluggish, he said. Annual inflation in the eurozone only fell slightly, from 5.3% in July to 5.2% in August.
“We remain determined to ensure that inflation returns to our 2% medium-term objective in due time,” Lagarde told the European Parliament’s Economic and Monetary Affairs Committee. “Inflation continues to decline, but is still expected to remain very high for a long time.”
The ECB raised its benchmark deposit rate this month to a record high of 4%, following a record pace of increases from -0.5% in July 2022.
“Do we also have in mind… the pain that it inflicts? It’s on our mind, I can assure you,” Lagarde said during a question-and-answer period with lawmakers. “And yes, we know that 30% of households of Member States have variable interest rate mortgages. It’s difficult, we know.”
He noted the burden inflation places on lower-income households, who pay more of their income on commodities such as energy, and said the answer is to quickly return inflation to 2%.
“The faster it is achieved and the more stable the prices are, the less painful it will be in the future,” Lagarde said.
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