BCE will keep interest rates at high levels

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Frankfurt. The president of the European Central Bank said Monday that interest rates will remain high enough to curb business activity “as long as necessary” to combat inflation. However, he sympathizes with homeowners who are seeing their mortgage payments go up.

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 are slowing the decline in the price level, although the economy remains sluggish, he said. Annual inflation in the eurozone fell only slightly, from 5.3% in July to 5.2% in August.

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“We remain determined to ensure that inflation returns to our 2% medium-term objective in due course,” Lagarde told the European Parliament’s Economic and Monetary Affairs Committee. “Inflation continues to decline, but is 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 increase from -0.5% in July 2022.

“Do we also have in mind … the pain this has caused? We have in mind, I can assure you,” Lagarde said during a question-and-answer period with lawmakers. “And yes, we know that 30% of households in the Member States have a variable interest rate mortgage. It is difficult, we know.”

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He noted that the burden inflation puts on low-income households, who pay more of their income on commodities such as energy, and said that the answer is to quickly return inflation to 2%.

“The faster it is achieved and the more stable the prices, the less painful it will be in the future,” said Lagarde.

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