The European Central Bank (ECB) plans to raise interest rates sometime after the end of the bond-buying program in the third quarter of this year, ECB board member Isabel Schnabel told Reuters on Saturday.
The ECB ‘s head of market operations said net asset purchases would be completed in the third quarter, as data support the expectation that medium – term inflation outlook will not ease.
“We will raise interest rates shortly afterwards, as the case may be, in the light of the incoming data,” Schnabel said at an event in Cernobbio in northern Italy.
The annual rise in consumer prices reached 7.5% in March, the highest ever recorded, as Russia’s war in Ukraine raises food and fuel prices, leaving consumers in the West poorer. Read the whole story
“The speed of normalization … will depend on the economic impact of the war, the severity of the inflation shock and its persistence,” Schnabel said.
The acceleration in price increases leaves the ECB, and the central banks of other major economies, with an acute policy dilemma.
Inflation alone would justify monetary tightening, especially given the low unemployment record foreshadows higher wages, a precondition for continued inflation.
But the tightening of policy could now crush an economy that is already close to stagnation, as the war in Ukraine sucks in consumer power and stifle business investment.
Nevertheless, Schnabel said the risk of inflation was moving towards even higher indications, given the sharp rise in producer prices, structural economic changes such as globalization and possible wage increases.
The ECB’s mandate is price stability, so it should prioritize it in the face of high inflation, while governments could support economic growth through targeted fiscal measures, avoiding overly expansive policies that would complicate the bank’s work. he said.
“A central bank that is perceived as committed to protecting its mandate can curb inflation at a lower financial cost,” he said, lowering inflation expectations.
The next ECB meeting will take place on 14 April. At its last meeting, it decided to close its bond markets in the third quarter, but made no further policy commitments, arguing that the policy should remain flexible.
Both the US Federal Reserve and the Bank of England have begun monetary tightening.
Source: Capital
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
