ECB President Christine Lagarde announced that the European Central Bank needs to extend its interest rate hike cycle to help control unexpectedly rising inflation.
In the speech, Lagarde said the bank must continue to bring borrowing costs up to a "sufficient level" that can curb inflation. He also repeated the same rhetoric that "inflation is too high and it is expected to play at that level".
Although he acknowledged that the jump in rates led to a tightening in bank lending conditions, he added that it was still uncertain "to what extent the transmission of ECB policy will become stronger." For that reason, Lagarde argued that the campaign to raise interest rates must continue until policymakers are confident that inflation is on track to return to the 2% target.
Some observers have predicted that the ECB could raise its deposit rate to as high as 3.75% by July, matching the all-time high reached in 2001.
Lagarde's comments came a day after preliminary data showed that the European zone's consumer price index rose less than expected on an annual basis in May. The core reading, which strips out volatile items such as food and energy and is closely monitored by the ECB, also rose at a slower pace than most economists had predicted.
At its last meeting, when rates were raised by a quarter of a percentage point, the ECB projected that average annual inflation would not fall back to 2% until the second half of 2025.
