European Central Bank Chief Economist Philip Lane said another increase in interest rates is appropriate next month, with data due in the coming weeks to determine the size of the move.
(Bloomberg) — European Central Bank Chief Economist Philip Lane said another increase in interest rates is appropriate next month, with data due in the coming weeks to determine the size of the move.
Financial-sector tensions, supply bottlenecks and energy prices have all eased, Lane said before the Bloomberg New Economy Gateway Europe conference outside Dublin.
But a more detailed picture of inflation is needed, along with the specifics on credit growth from a quarterly survey of bank lending, he said.
“As of now, two weeks away, I think the baseline is that we should indeed increase interest rates in May,” Lane said Tuesday in an interview. “Exactly what we do — I’m going to wait until we have that data before deciding.”
ECB officials broadly agree that rates must be lifted again at their next monetary-policy meeting on May 3-4. The question is whether they stick with the recent half-point pace or downshift to a quarter.
While the health of credit growth has been in question following the collapse of banks in the US and Switzerland, several ECB policymakers are optimistic that there won’t be a major negative impact on funding in the 20-nation euro zone.
As for inflation, the ECB’s job to rein in the euro era’s most extreme bout of surging prices isn’t complete. Underlying pressures, which exclude volatile inputs like food and energy costs, grew by yet another record last month, even as the headline gauge continued to ease.
“We are now in an intense phase of data dependence,” Lane said. “I’m very much in wait-and-see mode.”
Asked whether May’s decision holds clues as to subsequent steps, Lane said: “Let’s focus on what we do now in the May meeting, and then essentially the dominant driver of what we do in June is what the data tell us between now and June.”
Questioned about how long the ECB’s deposit rate — now at 3% — will remain at its peak, he said a prolonged period there is likely in a scenario where inflation returns to 2% and the euro zone dodges a recession, as officials currently predict.
“It would be appropriate to keep rates at the plateau level for a while before returning back to normal,” Lane said.
–With assistance from Jana Randow and Alexander Weber.
(Updates with more quotes from Lane in last three paragraphs.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.