Policymakers, as expected, raised the deposit rate to 2.5%, the highest since 2008. Lagarde warned that the most aggressive bout of monetary tightening in ECB history isn’t done — even as energy prices plunge and the Federal Reserve, the Governing Council said it “intends” to raise rates by another 50 basis points at its March meeting, then “evaluate the subsequent path of its monetary policy.”
“I can’t think of scenarios, unless they were quite extreme, where that would not happen,” she told reporters in Frankfurt. “Our determination to reach 2% medium-term inflation should not be doubted. Nor should be doubted the fact that once we are in restrictive territory we will want to stay there sufficiently.”“We know that we have ground to cover,” she said. “We know that we are not done.”Euro-area bonds extended gains on speculation that the pace of monetary tightening will slow.
It’s been a busy week for central banks. As well as Wednesday’s decision by the Fed to lift rates by a smaller, quarter-point increment, the Bank of England delivered another half-point hike earlier today.