MIKULOV, Czech Republic, May 31 (Reuters) – Record eurozone inflation justifies an interest rate hike in July and bigger measures than those announced so far may be needed to contain prices, it said on Tuesday. Peter Kazimir, member of the Governing Council of the European Central Bank (ECB).
According to the first estimate published Tuesday by Eurostat, inflation in the euro zone reached 8.1% in May over one year after 7.4% in April. This record level of price increases, four times higher than the ECB’s target, raises doubts as to the scenario according to which a quarter-point increase in the cost of credit in July would be enough to start the decline in the ‘inflation.
“The data, in my opinion, reinforces the need to take the first step towards a rate hike,” said Peter Kazimir, also governor of the Slovak central bank.
“My baseline is (up) 25 bps (in July) but I’m willing to talk 50 bps,” he added.
The ECB deposit rate, currently set at -0.5%, has been in negative territory since 2014.
According to Peter Kazimir, to control prices, the ECB will have to bring its rates to a “neutral” level, that is to say to a stage where they neither stimulate nor slow down growth. He points out, however, that even that might not be enough.
“The neutral rate is between 1% and 2%. For me, it’s closer to 2%,” he said. “So what’s in store for us is (a rise) of around 200 (basis) points. We could achieve that next year,” he continued.
Asked if that might be enough, he replied: “It seems to me now that it won’t be enough.” (Report Balazs Koranyi; French version Claude Chendjou)