ECB needs to keep interest rates ‘sustainably high’ to combat inflation – Lagarde

By Jesús Aguado

MADRID (Reuters) – The European Central Bank needs to keep interest rates high to curb inflation in the medium term, its president Christine Lagarde said on Friday, signalling more monetary tightening.

The ECB slowed the pace of rate hikes this month with a 25-basis-point rise, but Lagarde indicated the cycle was not over.

We still have to have sustainably high interest rates, so it’s a time when we have to really buckle up and look at this target that we have and deliver on it,” Lagarde told Spanish state television TVE.

The ECB has a medium term inflation target of 2%.

Lagarde, who did not elaborate on potential further hikes, said: “Our goal is simple and straightforward: price stability. And we have to be totally determined to deliver that.”

Markets expect a fresh, 25-basis-point increase at the ECB’s June meeting and possibly one more by the end of the summer, followed by rate cuts starting early next year.

We are heading towards more delicate decisions going forward but we will be courageous and we will take the decisions that are needed to bring inflation back to 2%. And we will do it, no question about it,” Lagarde said.

She said the ECB would pursue that goal even though the euro zone was in a “critical” moment with inflation going down, monetary tightening beginning to have an impact, and banks limiting credit.

Underlying price growth, the key focus of ECB policymakers in recent months, slowed a touch in April to 7.3% from 7.5%, though the crucial services component continued to accelerate.

(Reporting by Jesús Aguado; additional reporting by Emma Pinedo; editing by Inti Landauro and Hugh Lawson)