(Bloomberg) — The European Central Bank should either delay or pare back this week’s planned interest-rate increase to avoid a policy error reminiscent of 2011, former Executive Board member Lorenzo Bini Smaghi told Boersen-Zeitung.
(Bloomberg) — The European Central Bank should either delay or pare back this week’s planned interest-rate increase to avoid a policy error reminiscent of 2011, former Executive Board member Lorenzo Bini Smaghi told Boersen-Zeitung.
The German newspaper published an interview with the Italian on Wednesday, the eve of a decision for which a half-point hike has been described by President Christine Lagarde as “very, very likely.”
Her remarks, however, came before the collapse of Silicon Valley Bank, which has rattled global markets and prompted investors to dial back bets on monetary tightening on concerns over financial stability.
“Postponing for one month or doing only 25 points would not be a problem if well explained,” Bini Smaghi told Boersen-Zeitung. “The financial contagion is equivalent to some form of tightening of monetary conditions. Sticking to the 50-point increase, as if nothing happened, means implementing a tougher stance than previously thought.”
The former central banker, who’s now chairman of Societe Generale SA, made the parallel with 12 years ago, when the ECB raised rates only to undo the move as sovereign-debt turmoil engulfed the euro region.
“The ECB should avoid repeating the 2011 mistake, when it continued hiking rates without taking into account the growing contagion from the Greek debt restructuring,” Bini Smaghi said, according to the newspaper. “This precipitated the crisis and led to a policy reversal after a few months.”
People familiar with the situation told Bloomberg this week that while there’s likely to be stronger opposition to raising the deposit rate by a half-point, there’s no reason to believe at this stage that a majority of the Governing Council will be persuaded to change those plans.
Euro-area inflation figures for February showed underlying price pressures surged to a new record. The headline number itself — 8.5% — was much stronger than anticipated. Data since have showed French inflation revised up and Spanish data down. Final euro-zone numbers are due Friday.
–With assistance from Jana Randow.
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