UK Markets closed

ECB will keep raising rates despite recession risk in euro zone, De Guindos says

FILE PHOTO: EU finance and economy ministers hold informal meeting in Berlin

MADRID (Reuters) - The European Central Bank will keep raising interest rates until it brings inflation down to around its 2% mid-term goal even though the euro zone economy is heading towards recession, ECB Vice-President Luis de Guindos said on Wednesday.

De Guindos did not elaborate on the magnitude of the potential next interest rate rise in December but said it would depend on upcoming ECB projections and inflation readings in November.

"I can tell you that our approach will always be the same, we will continue to raise interest rates to a level that allows us to ensure that inflation converges towards our definition of price stability," De Guindos told a financial event in Madrid.

The ECB has raised its rate on bank deposits from minus 0.5% to 1.5% in three months.

De Guindos said that inflation would remain around current levels of around 10% in the coming months, adding that the persistency of inflation pressures should not be underestimated.

"It is very important to look at the evolution of underlying inflation and possible second round effects because they will determine the response of monetary policy," De Guindos said.

De Guindos said he expected price rise to slow in the first quarter or first half of next year but even with an environment of high inflation, 6% or 7% on average, "we also believe core inflation will be high in coming months."

He also said that an economic deceleration or recession would not by itself reduce the high level of inflation.

"It is very possible that in the fourth quarter and the first quarter of next year we will have negative growth rates," De Guindos said.

(Reporting by Jesús Aguado and Emma Pinedo; editing by Kim Coghill)