The European Central Bank (ECB) should continue raising interest rates, but there is no need for a big move and the bank should instead take a prudent, cautious approach to normalizing its policy, the head of the Bank of Greece said on Tuesday, as reported by Reuters.
The remarks are the first to go against calls for a big rate hike, with markets now split between a 50 basis point hike and a 75 basis point increase at the ECB’s meeting on September 8, following hawkish comments from a a number of officials, notes Reuters.
“There is no need to take very big steps”, said Yiannis Stournaras speaking at a conference. “Gradual normalization will be the appropriate” approach.
He also said that in his estimation, the neutral rate – where the ECB will neither encourage nor slow down growth – is between 0.5% and 1.5% and therefore the deposit rate, now at zero, is not far off. .
Most other ECB officials, however, put the neutral rate somewhat higher, with estimates centered around 1.5 percent, Reuters reports.
The BoE governor also predicted that inflation would peak this year and then ease in 2023, before moving towards the ECB’s 2% target next year.
“This year we will see the peak of inflation and a steady slowdown thereafter, inflation will gradually decline in 2023 and converge towards the target in 2024,” he estimated.
Source: Capital
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