Eurozone inflation does not require significant policy tightening, according to ECB Lane


Frankfurt — ECB Chief Economist Philip Lane said eurozone inflation will return to trend as pandemic commodities and labor bottlenecks have been resolved without significant policy tightening by the European Central Bank. ..

Lane has long said that the eurozone’s current record high inflation rate is temporary, despite increasing pressure on the ECB from both investors and policy makers to raise interest rates. He defended his view.

“Because the bottleneck will eventually be resolved, price pressures should ease and inflation should return to that trend without the need for significant monetary policy adjustments,” Lane said in a blog post.

He received a response from French Governor Francois Billroy de Garhow at another event.

They may have been trying to weaken market expectations for the early termination of ECB bond purchases and a rate hike equivalent to 50 basis points by December.

These were excited last week when ECB Governor Christine Lagarde refused to rule out this year’s rate hike.

However, Lane defended the ECB’s “solid” approach.

“If the bottleneck is primarily external due to global supply turmoil and surges in global demand, the logic behind a solid approach to monetary policy will be strengthened,” he said in his blog. increase.

“Monetary policy influences domestic demand, so tightening monetary policy in response to external supply shocks means that the economy will face two negative effects at the same time.”

The ECB said in December that it would buy bonds until at least October and raise interest rates only after those purchases were completed.

However, this guidance is subject to change at the next policy meeting in March, when central banks will also release updates, which could raise inflation expectations.

At another event, ECB Deputy Governor Luis de Guindos said eurozone inflation, which reached 5.1% in January, will not fall below the ECB’s 2% target this year.

He supports the European Commission’s forecast of an average inflation rate of 3.5% in 2022, where wage increases in the euro area have not caught up with inflation so far, but negotiations and significant price increases due to the pandemic. He added that he may have been late.

The ECB finally raised interest rates in 2011, in a situation widely regarded as a policy mistake in the midst of supply shock and debt crisis.

The interest rate on bank deposits is currently minus 0.5%. That is, the bank will be charged to park the reserve cash at the central bank overnight.

Reuters

follow

Posted on