ECB warns of ‘looming recession’ as it hikes rates again

FRANKFURT, AFP: The European Central Bank announced another jumbo interest rate hike on Thursday and said further increases would follow to combat soaring inflation, even as its president, Christine Lagarde, warned a Eurozone recession was looming.

The ECB’s 25-member governing council repeated last month’s unprecedented move and opted for another bumper increase of 75 basis points, leaving its three main rates sitting in a range of between 1.5 and 2.25%.

“We will have further rate increases in the future,” Lagarde said. “There is still ground to cover.” 

The Frankfurt institution is under pressure to rein in record-high inflation, mainly driven by surging food and especially energy prices in the wake of Russia’s war in Ukraine.

Eurozone inflation stood at 9.9% in September, nearly five times the ECB’s 2% target.

Inflation “remains far too high” in the 19-nation currency club, Lagarde said.

Like other central banks, the ECB is fighting back with a series of rate hikes intended to dampen demand by making credit more expensive for households and businesses.

But higher borrowing costs also weigh on economic activity, and the Eurozone outlook has deteriorated significantly.

“The likelihood of recession (is) looming much more on the horizon,” Lagarde told a press conference.

And inflation could go “higher than expected if there are increases in the prices of energy and food commodities”, she added.

“Obviously we’re concerned, particularly about those who have low income,” Lagarde said.

Moscow’s move to curb gas supplies to Europe has triggered an energy crisis on the continent, fuelling fears of power shortages and sky-high heating bills this winter.

If Russia completely cuts off gas flows to Europe, the Eurozone economy could shrink by nearly 1% in 2023, ECB Vice-President Luis de Guindos recently warned.