Sources have said that the European Central Bank is assessing whether they need to raise their key rate to 2% or higher to stem record-high inflation in Europe’s eurozone despite a possible recession.
Inflation has risen to 9.1% in October, which is above the ECB’s 2% target for the next two years. The central bank has been increasing its interest rates at an unprecedented pace and urging governments and other government agencies to lower energy bills that have soared since Russia invaded Ukraine.
The ECB increased its deposit rate to 0.75%. President Christine Lagarde suggested that another two to three increases could be made. However, rates are still far from a level that will see inflation return to 2%.
Five people familiar with the matter stated that many policymakers believed that the rate would need to be raised to “restrictive territory”. This is jargon that refers to a rate that causes the economy’s slowdown at 2% or higher.
Sources spoke under condition of anonymity to discuss policy deliberations. They said that this would likely occur if the ECB’s 2025 inflation projection, which is due to be published in December and still above 2%, is released.