Berlin – A senior European Central Bank official said that raising interest rates prematurely could “hinder recovery” and commented that inflation in the euro area of 19 countries reached record speeds.
The European Union Statistics Bureau announced on January 7 that annual inflation rose to 5% in December. This is the highest level in the euro area since record-holding began in 1997, breaking the previous record of 4.9% from November.
The combined pressure of the ECB to act on inflation as it keeps interest rates at ultra-low levels to stimulate the economy recovering from the depth of the pandemic. Currently, analysts do not expect banks to raise interest rates until 2023.
In an interview with the Saturday edition of the German daily Sueddeutsche Zeitung, ECB executive committee member Isabel Schnabel emphasized the bank’s expectations that “inflation will drop significantly in the medium term.”
“That’s why we’re not currently raising interest rates, as some people want,” she said.
The ECB forecasts that medium-term inflation will be below the bank’s target of 2%, but she added that there is “great uncertainty” in the current outlook.
“That’s why interest rates shouldn’t be raised prematurely, because they can hinder recovery,” Schnabel said. “But if we conclude that inflation could subside above 2%, we will take swift and decisive action.”
However, she admitted that banks are looking at current year-over-year figures “with some concern because they are higher than originally expected.” But she said inflation, when calculated over a longer period of time, did not increase as much as they suggest.
Inflation has traditionally been a particular concern in Germany, Europe’s largest economy, in Schnabel’s home country.
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If interest rates rise too quickly, recovery can be hindered.
Source link If interest rates rise too quickly, recovery can be hindered.