FRANKFURT (Reuters) – Inflation in the euro zone remains too high, necessitating further monetary policy tightening by the European Central Bank (ECB), even as past rate hikes begin to bear fruit, a said Thursday the president of the institution Christine Lagarde.

“Inflation is too high and should stay so for too long,” she said at an event in Hanover.

“That is why we have raised interest rates at the fastest rate ever and made it clear that we still have some way to go to bring interest rates down to sufficiently restrictive levels,” he said. she added.

The monetary policy tightening of the ECB, which has raised rates by 375 basis points since July 2022, has led to a sharp rise in bank rates but the ECB does not know to what extent its policy transmission will intensify, said said Christine Lagarde.

“We therefore need to continue our cycle of rate hikes until we are confident enough that inflation is on track to return to our (2%) target in due course,” he said. she continued.

While many ECB members have already put a July rate hike on the table, after the one expected in two weeks, some economists have argued that the latest inflation figures could warrant a pause as early as this month. .

However, this is not the main scenario for investors, who are still anticipating two more rate hikes.

Although the rise in prices slowed down a little more sharply than expected in May and core inflation also subsided, it is still almost three times higher than the target.

“There is no clear evidence that underlying inflation has peaked,” said Christine Lagarde. “Eurozone labor markets are tight and employees have considerable bargaining power, which they are beginning to use” to recoup lost purchasing power.

(Balazs Koranyi; Laetitia Volga, edited by Kate Entringer and Jean-Stéphane Brosse)

Copyright © 2023 Thomson Reuters