Prepare for further rate hikes this year and next, the head of the European Central Bank warned, as prices will remain elevated for longer.
CB president Christine Lagarde said it would likely take “more than two” meetings and “less than five” to get interest rates to the desired level.
The 25-member Governing Council of the ECB agreed – unanimously – to cut interest rates by 0.75 pc on Thursday. at the higher end of the scale expected by the markets.
Ms Lagarde said “determined action had to be taken” because of the rising prices, although there were “different opinions around the table” during the discussion.
“We have raised the three key ECB interest rates by 75 basis points and expect to raise rates further as inflation remains much too high and is likely to remain above our target for an extended period of time,” she told reports on Thursday.
“This is not an isolated decision. We will continue to raise interest rates. I didn’t say we would raise with 75 [basis points], as if 75 were the norm. It’s not.”
The decision comes a week after data showed inflation in the eurozone rose to a record 9.1 percent in August, compared to a year earlier.
While energy and food prices are rising fastest, price spikes have spread across all goods and services in the economy.
ECB staff now predict inflation will average 8.1 percent this year, falling to 5.5 percent next year and 2.3 percent in 2024.
Economists at the Frankfurt-based institution are not forecasting a recession this year, though they say growth will stall over the winter.