FRANKFURT, Germany (AP) — The European Central Bank’s move to raise interest rates for the eighth consecutive time and its commitment to persist until high inflation is controlled has been commended by the Managing Director of the International Monetary Fund.
Kristalina Georgieva, in her statement on Friday, expressed the IMF’s approval of the ECB’s decision to increase rates by a quarter-percentage point and its President Christine Lagarde’s assurance that there are no plans to halt the process. The ECB aims to bring down inflation from 6.1% to its target of 2%.
Georgieva emphasized the need for continued monetary policy tightening and maintaining restrictive measures until inflation expectations are firmly stabilized and inflation aligns with the desired target. She further commended the ECB’s decision and the surrounding communication strategy.
While the U.S. Federal Reserve has temporarily paused its series of rate hikes to evaluate their impact on the economy, the central bank responsible for the euro currency zone, consisting of 20 nations, is steadfast in its pursuit of rate increases.
Inflation surged due to Russia’s aggression against Ukraine, resulting in higher energy and grain prices. Although these factors have subsided, price pressures have persisted as workers demand wage increases to offset lost purchasing power, and businesses raise prices to cover higher costs and maintain profitability.
Despite the potential impact on economic growth, the European Central Bank (ECB) is raising interest rates. Higher rates help combat inflation by increasing the cost of borrowing for purchases and business expansion, which dampens demand for goods. However, there is a risk that raising rates too much could excessively slow down the economy.
The eurozone economy experienced a slight contraction in the last two quarters of 2022 and the first two quarters of this year, meeting the technical definition of a recession. However, the economy’s notable strength lies in its record-low unemployment rate.
Despite the “mild technical recession,” Managing Director Georgieva expects growth to rebound later in the year and end on a positive note. During a news conference in Luxembourg regarding the IMF’s regular assessment of eurozone policies, she praised the economy’s resilience in securing new energy supplies following Russia’s disruption of natural gas deliveries to Europe during the Ukraine conflict.
The IMF projects a growth rate of 0.8% for the eurozone in the current year and 1.4% for the following year.
