ECB Raises Rates as Lagarde Downplays Neutral Interest Rate

European Central Bank President Christine Lagarde downplayed the importance of the so-called neutral interest rate, which she described as 'highly theoretical' and designed for a world without shocks.

The ECB raised its three key rates by 25 basis points to their second rise this year, with the deposit facility rate increasing to 2.5 per cent from September 16, above the estimated 1.75 to 2.5 per cent range for the neutral rate.

Lagarde said that while the Governing Council gave little weight to the concept of a neutral interest rate, it was possible that pushing rates above this level could restrain growth, but she did not exclude this possibility.