ECB’s Chief Economist, Philip Lane, suggests that the bank should raise interest rates in May as the current indicators point towards the need to do so. Although future hikes will depend on the economic data, Lane insists that this is not the right time to stop and that the bank has to bring inflation back to the 2% target as soon as possible. Despite falling inflation in the euro area, the central bank’s primary goal is to get close to the 2% target. Certain sectors, such as food, have seen inflationary pressures persist, while rising inflation could pose a risk due to the potential for “sticky” inflation. The ECB has raised interest rates by 3.5 percentage points, from -0.5% to 3%, to deal with high inflation, making it an unprecedented move for the eurozone.
The bigger concern is to bring inflation closer to the 2% target within a reasonable time period. The longer it is too high, the higher the risk of people losing faith in the bank’s ability to return to its long-term policy objective. Lane’s statements come after several central bank governors who are members of the ECB’s Governing Council confirmed that there is an anticipated new rate hike from the upcoming meeting next month. It remains to be seen by how much the ECB will increase interest rates in May.
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