The European Central Bank’s planned half-point increase in interest rates this month will probably be followed by more hikes, with borrowing costs to remain elevated for a while, according to Governing Council member Madis Muller.
(Bloomberg) — The European Central Bank’s planned half-point increase in interest rates this month will probably be followed by more hikes, with borrowing costs to remain elevated for a while, according to Governing Council member Madis Muller.
“It’s most likely this won’t be the last rate rise in this cycle,” the Estonian central bank chief said Friday in Ljubljana. “It’s quite possible that interest rates will need to stay high for quite some time so that we can be sure that inflation will come back to, and remain at, close to 2%.”
Muller also said:
- “Headline inflation started to come down toward the end of last year, mainly thanks to a decline in energy prices, and it fell to 8.5% in January. More worrying however is that core inflation has remained persistently high at more than 5%, as the underlying price pressures aren’t yet receding”
- “If we hesitate, we may later have to raise interest rates much higher, and keep them high for much longer, in order to get inflation down to the target of 2% and to keep it there”
- “As common monetary policy cannot solve cross-country differences in cyclical positions, fiscal policy must play a role. In countries where strong domestic demand is causing high inflation, a tighter fiscal policy can help reduce the pressure”
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