'Risk of recession' increased, expect to raise rates more: ECB's Lagarde

European Central Bank President Christine Lagarde said interest rates may need to be lifted to levels that restrict economic expansion in order to drive down inflation that’s rocketed to more than five times the official target.

Lagarde said that the “risk of a recession” has increased, but that a downturn on its own won’t be sufficient to tame soaring prices. Having already delivered the most aggressive tightening in its history, the ECB is expected to raise borrowing costs to 2 per cent or more from 1.5 per cent now.

“We expect to raise rates further — and withdrawing accommodation may not be enough,” Lagarde said in a speech in Frankfurt. “Ultimately, we will raise rates to levels that bring inflation back down to our medium-term target in a timely manner.”

ECB officials are maintaining that borrowing costs must continue rising to counter the fastest inflation since the |euro was introduced more than two decades ago.