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European Central Bank recognize inflation risks, allows raising interest

European Central Bank

Brussels, (Business News Report)|| The European Central Bank has confirmed that inflation risks are increasing in the European region and opened the door to interest rates hike during 2022.

The European Central Bank’s decision represents a remarkable policy shift for one of the world’s most accommodating central banks.

The central bank said that high inflation has long been expected to fall on its own below its two percent target later this year, but a series of record consumer price readings challenged the narrative that other central banks abandoned months ago.

“Inflation is likely to remain elevated for longer than previously expected but to decline in the course of this year,” ECB President Christine Lagarde told a news conference.

“Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term,” she said, arguing that price growth across the 19 countries that use the euro is becoming more broad-based.

“The situation has indeed changed.”

While Lagarde said the European Central Bank would not rush into any move, she declined to repeat her previous guidance that an interest rate increase this year was “very unlikely”.

Sources close to the discussions said a large minority of policymakers had pressured the bank to take action, possibly by announcing a faster reduction in bond purchases. This is before agreeing to a delay until March.

Policy makers have been clear that an interest rate hike this year should not be ruled out given the risks of inflation and the uncertainty surrounding the outlook, the sources said.

Inflation in the euro area hit a record high of 5.1 percent in January, well above the European Central Bank’s expectations.

Lagarde admitted that the figure, which was driven by rising energy and food prices, surprised even the central bank.

It is expected that the current year 2022 will be the year of raising interest rates around the world, in light of the inflation that hits the economies of countries after the stimulus packages that accompanied the Coronavirus pandemic.

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