European Central Bank President Christine Lagarde said the central bank will continue to raise interest rates and may even need to restrict economic activity to control inflation.
The European Central Bank raised interest rates by an unprecedented 200 basis points since July to tackle inflation, and said further policy tightening comes by raising interest rates and reducing its €5 trillion debt.
“Interest rates are and remain the main tool for adjusting our policy stance,” Lagarde said. and “Recognizing that interest rates remain the most effective tool for shaping our policy stance, it is appropriate that the balance sheet be normalized in a measured and predictable manner.”
The ECB will outline plans to reduce the balance sheet in December and the process is expected to begin with the bank being allowed to expire some, but not all, bonds.