Record inflation in the Eurozone makes it necessary for the European Central Bank to raise interest rates in July, ECB member and Slovakia central banker Peter Kazimir said on Tuesday, adding that higher-than-expected increases may be needed so far. in order to curb price increases.
Eurozone inflation jumped to ΅8.1% in May, four times higher than the ECB ‘s 2% target, which calls into question the central bank’s view that interest rate hikes by 25 basis points from July are enough to curb the stubbornly significant increase in prices.
“The data, in my view, confirm the need to take the first step in raising interest rates,” said the Slovak central banker. “My main line is to increase by 25 basis points (in July) but it is open to discussions on 50 basis points,” Kazimir told Reuters in an interview.
“I estimate that we will increase by 25 basis points in July, and then possibly by 50 basis points in September,” Kazimir said.
The ECB’s deposit rate has been negative since 2014, currently at -0.5%, while the central bank has not raised interest rates for more than a decade.
However, the ECB is now called upon to take action as inflation proves more persistent than the central bank thought a few months ago, and even structural inflation, which “filters” volatile food and fuel prices, is moving in the right direction. more than double the ECB’s target.
In order to tame prices, the ECB will have to raise its interest rates to a “neutral” level, a level that will neither stimulate nor hinder growth, but even that may not be enough, Kazimir said.
“The neutral interest rate is somewhere between 1% and 2%. For me, it is closer to 2%”, stressed Kazimir, adding: “Therefore, we have before us a trip of about 200 points (base). “We could do it next year.”
Asked if that would be enough, Kazimir replied: “I think, now, that it will not be enough.”
The central banker of Slovakia also stressed that he does not see a return to inflation at the level of 2%, which the ECB has set before 2025. It is noted that until recently the ECB estimated that inflation would return to 2% in 2024 .
Source: Capital
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