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ECB’s Centeno sees rate hike in early July
Global Banking & Finance Review®
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By Sergio Goncalves
LISBON (Reuters) -European Central Bank (ECB) Governing Council member Mario Centeno said on Friday that the ECB should begin an interest rate hike cycle in early July, and he called for any withdrawal of stimulus to be done gradually.
He said the normalisation of monetary policy was “necessary and desirable”, adding that any perception there had not been “a sufficiently vigorous response” might require further, more aggressive tightening to control inflation at a later date.
Normalisation must be done gradually, he added, and policymakers should not “over-react” to inflation rising across Europe or risk penalising economic growth.
He said the ECB is likely to end its bond-buying stimulus programme early in the third quarter of this year and then start a cycle of interest rate hikes.
“It is anticipated that this could happen in the first weeks of the third quarter,” he said at a banking conference in Lisbon.
With inflation soaring to a record high of 7.5% in the euro zone last month, well above the ECB’s 2% target, policymakers are increasingly advocating a rapid unwinding of stimulus, and several have called for a rate hike in July.
“Although inflation remains high in 2022, there are no structural reasons why it should not converge towards the medium-term objective as imbalances are gradually resolved and uncertainty dissipated,” Centeno said.
“There are currently no structuring signs of de-anchoring inflation,” he said, acknowledging that “the balance of risks around inflation is skewed upward” after Russia’s invasion of Ukraine.
The possible second-order effects of wage pressures was “an additional risk which needs close and continued monitoring”, he added.
(Reporting by Sergio Goncalves, editing by Aislinn Laing and Hugh Lawson)
Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates to achieve macroeconomic objectives such as controlling inflation and stabilizing the currency.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured as an annual percentage increase.
The European Central Bank (ECB) is the central bank for the euro and is responsible for monetary policy within the Eurozone, aiming to maintain price stability.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount. They are influenced by central bank policies.
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