A high ranking official at the ECB has acknowledged that the European Central Bank is worried about inflation rising in the Euro area beyond what it expects. However, Europe’s monetary authority is not prepared to raise interest rates at this point in time, the executive unveiled.
ECB Does Not See Reason To Adjust Interest Rates Despite Eurozone inflation reaching 5%
Trading Economics’ preliminary Eurostat estimates show that annual inflation has risen to 5.5% in December. The last time inflation declined was in June when it fell to 1.9% from May’s 2%.
Source: Trading Economics
“We view these figures with some concern, as they are higher than we initially expected,” Isabel Schnabel, member of the Executive Board of the ECB, commented in a recent interview with Süddeutsche Zeitung. He also acknowledged the concerns of many Europeans about falling real wages and low interest income.
Nevertheless, Schnabel made it clear the regulator is not ready to raise interest rates in the eurozone for now, citing forecasts indicating that the inflation spike caused by the global pandemic will be followed by a “marked decline.” The banker also pointed out that the ECB should avoid choking off the economic recovery and stated:
We project that inflation in the medium term will fall below our target at 2%. This is despite acknowledging that there are still uncertainties.
European Central Bank will Act If Inflation Rises above 2%
The representative of the ECB executive body also assured that the euro area’s central bank “will act quickly and decisively if we conclude that inflation may settle above 2%.” She remarked that a precondition for lifting rates up is to end net asset purchases.
Schnabel referred to the decision of ECB’s Governing Council in December to gradually reduce them over the coming quarters as the first step in that direction. They will be discontinued at the close of March 2022 from those purchased under the Pandemic Emergency Purchase Program.
An official refuted criticism that the ECB’s inaction reflected the bank’s fears that the euro debt crisis would flare up once again, particularly in Italy, if the interest rate rises. “Our actions are guided solely by our price stability mandate. Public borrowing by individual countries has no bearing on the Governing Council’s decisions,” she insisted.
Eurostat’s data and Schnabel’s comments come as other major economies are also registering surging inflation after measures to deal with the economic fallout of the Covid-19 epidemic. According to Bitcoin.com News, the U.S. Labor Department published numbers on Wednesday showing that the consumer price index increased by 7% in the last month. That’s the largest annual increase in the past four decades.
Is it possible that the central banks of other countries will increase interest rates as a result of rising inflation? Please comment below with your thoughts.
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