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The ECB called the optimal pace of rate hikes


August, 30 2022
watermark Economic news

Philip Lane, chief economist at the European Central Bank, said the ECB should raise rates at a «measured pace» in order to be able to adjust the rate in case of a change in circumstances. 


In July, the European regulator raised the rate by 50 basis points. Market participants expected that the central bank would take similar steps at the September meeting, but several ECB leaders expressed support for a more significant increase in rates against the background of worsening inflation prospects.


And although the question of the final rate remains open, the ECB noted that the rate should be raised to a neutral level of 1.5-2% (while it will neither restrain nor stimulate the economy) by the end of this year. Such a rate size implies an increase in rates at each of the remaining meetings of this year. 


«Although the upward risks for inflation are now stronger than the downward ones, but if the incoming economic data indicate the need to reduce the final rate, then it will be easier to do this with a step-by-step approach,» Lane said.


Moreover, the possibility of multi-step adjustments on the way to the final rate also makes it easier to make adjustments in the event of a change in circumstances. Lane noted that although current inflation is high, indicators of longer-term inflation remain close to the ECB's target level of 2%, since many understand that the factors provoking inflation are temporary and will eventually fade away.


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