The President of the European Central Bank (ECB) Christine Lagarde signalled on Monday that borrowing costs may have reached their peak, but will remain high for as long as it takes to curb inflation.
Speaking before the European Parliament's economic committee, Lagarde said the ECB considers its rates "have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target."
In mid-September, the Frankfurt-based bank raised interest rates by 25 basis points to their highest level in the eurozone’s history. The decision came despite fears of an economic slowdown gripping the continent.
Lagarde on Monday repeatedly suggested that while interest rates may have reached their peak, they would stay elevated for an extended period of time.
She has repeatedly said rates will not come down until inflation comes closer to the ECB’s medium-term target of 2%.
"This is something that is not measured in short distances," Lagarde said. "It's a long race that we are in."
Inflation in the euro area was down to 5.2% in August, with core inflation - which provides a more accurate estimate of underlying price pressures as it excludes food and energy prices - at 5.3%.
But despite all inflation indicators abating, domestic pressures remained strong, with families bearing the brunt of an uptick in energy prices and continuously high food inflation.
Lagarde assured EU lawmakers that the ECB bears in mind the "pain and suffering" it inflicts on Europeans with its restrictive monetary policy, particularly those with variable interest rates on mortgages.
Many economists have called on the ECB to abandon its cycle of hike rates to avoid an economic slowdown, with a slump in business investments and lower demand for exports dampening growth prospects.
The Bank of England unexpectedly paused its rate hike cycle earlier this month in response to an economic slowdown.
In September, the EU's growth estimates were revised down to a modest 0.8% for 2023 from 1% in the spring, driven by worrying signs of stalling economic activity in Germany.