The European Central Bank’s chief economist, Philip Lane, stresses flexibility in shaping the interest rate shift. Very low inflation from the past will not return.
5:40 PM, February 17, 2022
The European Central Bank’s chief economist, Philip Lane, sees flexibility in raising interest rates in the future. “When we make decisions about the interest rate, we will consider all the factors.”, he said at an online event on Thursday. Since the European Central Bank (ECB) is currently moving into negative territory with respect to the deposit rate, There is no easy answer About how important future steps are when weighing the pros and cons.
The extent and frequency of interest rate hikes also depends on the inflation environment in which one finds oneself. Accordingly, a gradual normalization or strong tightening may be necessary. In principle, in addition to increases of a quarter of a percentage point, other increases can also be envisaged.
At the same time, Lin stressed that there are several factors that indicate that the “excessive” low inflation environment that prevailed from 2014 to 2019 will not return. During that period, the inflation rate was 0.9 percent. The European Central Bank aims for an inflation rate of 2.0%. So far, central bank economists expect a rate of 1.8 percent for 2023 and 2024 – currently estimated at 3.2 percent for the current year. Forecasts are updated in March.
No “sudden” change of direction
Supported by higher energy prices, the inflation rate rose to a record high of 5.1 percent in January. European Central Bank President Christine Lagarde did not repeat her previous assessment after the last rate meetingAccordingly, a shift in interest rates is unlikely in 2022.
Interest rate speculation has been rife lately in stock exchanges, which have assumed increases of up to half a percent by December. The European Central Bank left its key monetary policy rate at 0.0 percent. At the same time, banks should continue to pay interest on fines, if they stop the excess money in the European Central Bank: the deposit rate remains at 0.5 per cent. The last time the European Central Bank raised interest rates was in 2011. Lagarde indicated that there would be no sudden change of direction.