Three of the toughest-placed European Central Bank officials on Thursday called for raising interest rates to a level that weakens growth in order to stem the rise in prices, which they said was at increasing risk of taking root in the economy. euro zone.
With eurozone inflation in double digits, the ECB has been raising rates at a record pace, even as the region’s economy heads into recession.
This has led some officials to weigh the benefits of future increases against the risk to growth.
But ECB board member Isabel Schnabel, the leading voice among policymakers advocating higher borrowing costs, said the central bank must move forward and achieve a “restrictive territory”, a call echoed by Slovenia’s central bank governors. and Slovakia.
“There is no time for a pause in monetary policy,” Schnabel told an audience at the Bank of Slovenia. “We will need to raise interest rates further, likely in restrictive territory.”
The event’s host, Slovenian central bank governor Bostjan Vasle, and his Slovak counterpart, Peter Kazimir, repeated the prediction moments later on the same panel.
The ECB deposit rate is now at 1.5% and economists estimate the neutral level, which is neither restrictive nor stimulating, to be between 1.5% and 2%.
Schnabel pointed to a number of indicators suggesting that high price growth is in danger of consolidating, such as rising wages and so-called core inflation, which eliminates more volatile prices, but also market and consumer expectations.
That means a shallow recession is unlikely to bring inflation down to the ECB’s 2% target, she added.
“Only a deep recession with a sharp rise in unemployment can significantly lessen inflationary pressure,” Schnabel said. “That is unlikely at present, particularly given the robust labor market, large savings glut and massive fiscal support.”
Kazimir also said eurozone governments were overspending to support households during the energy crisis, adding to already excessive inflationary pressures.
Vasle joined a number of officials urging the ECB to begin unwinding its multi-trillion-euro bonds next year as part of its fight against inflation.
Source: CNN Brasil
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