Daily Times

The European Central Bank (ECB) signaled on Monday that it would not raise interest rates from the current low levels next year in spite of the persistently surging inflation.

Speaking at the regular hearing of the Committee on Economic and Monetary Affairs of the European Parliament via video link, ECB President Christine Lagarde said that the conditions that will trigger interest rates increases “are very unlikely to be satisfied next year.”

In its so-called “forward guidance,” the central bank has decided that the interest rates rise should be hinged on three conditions of inflation.

Unless inflation reaches two percent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and the process in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two percent over the medium term, the ECB will not lift interest rates.

Lagarde elaborated that the outlook for inflation over the medium term remains subdued and thus interest rates rises are not warranted according to the forward guidance rules.

The inflation in the euro area remains stubbornly high, standing at 4.1 percent in October.

She also dismissed the concern about a possible self-fulfilling spiral of inflation, which may be triggered by higher wages and higher prices. “We do see wage growth next year potentially rising somewhat more than this year, but the risk of second-round effects remains limited,” she said.

Adding to Lagarde’s optimism is the solid economic growth in the euro area. The gross domestic product (GDP) in the euro area grew by 2.2 percent in the third quarter from the second one, and by 3.7 percent year-on-year.