ECB To Raise Interest Rates

The European Central Bank based in Frankfurt, Germany, said that interest rates will be raised several more times to tame price pressures, despite inflation reaching its peak.

“We do expect that more rate increases will be necessary, but a lot has been done already,” ECB chief economist Philip Lane announced to Milano Finanza. “I would be reasonably confident in saying that it is likely we are close to peak inflation.”

The ECB raised rates up to 200 basis points (bps) since July to manage the high inflation and has signaled a slowdown in the pace of monetary tightening this month to 75 bps. Lane proposed his case for another slowdown this 2023.

“We should take into account the scale of what we have already done,” said Lane, who makes policy proposals for the rate-setting Governing Council. “So the basis for the decision will be different.”

Inflation at 10% may have reached its peak but its decline will be slow over the coming months increase rates are still possible in 2023.

“Given the significant increase in (natural gas) prices, I don’t rule out some extra inflation early next year,” Lane said. “The journey of inflation from the current very high levels back to 2% will take time.”

Policymakers are advised to look out for underlying price growth, not including volatile energy and food prices, which could still accelerate from its 5% reading, and could take even longer to decline.

The decline is due to past energy price increases, which are still channeling into other sectors, particularly services.

Sources: Inquirer.net