Eurozone interest rates must continue to rise, says European Central Bank

theguardian.com:

Interest rates across the eurozone must continue to ratchet upwards to tackle rapidly rising inflation, European Central Bank policymakers said.

The ECB’s call to prioritise the fight against inflation with further increases in the cost of borrowing came after it raised rates by an unprecedented 0.75 percentage points on Thursday to 1.25%.

It warned that eurozone inflation was at its highest rate in almost half a century in July, at 9.1%, up from 8.9% in July, and at risk of becoming entrenched.

“Inflation remains unacceptably high,” said Peter Kažimír, Slovakia’s central bank chief, who sits on the ECB’s governing body. “The priority now is to continue vigorously the normalisation of monetary policy.”

Kažimír’s remarks were widely interpreted as a call for further significant increases in borrowing costs despite the likelihood it will significantly slow the 19-member currency bloc’s economic recovery.

Echoing his words, the Dutch central bank president, Klaas Knot, said slowing growth was a necessary side-effect of the fight against inflation. “We expect inflation to keep rising in the coming months, so that means we only have one problem on our plate: inflation,” Knot said, adding: “That will mean we will have to slow economic growth at least a bit to reduce inflation.”

Bank of England officials are expected to repeat August’s 0.5 percentage point rise when they next meet, taking the bank’s base rate to 2.25%. They had been due to meet on 15 September but as a mark of respect after the death of the Queen, the meeting has been postponed for a week, so will take place on 22 September.

Sanjay Raja, a senior economist at Deutsche Bank Research, said the monetary policy committee’s nine members were likely adopt a middle course