FRANKFURT, May 5 (Reuters) – The European Central Bank (ECB) is bracing for a cycle of rising borrowing costs that will push its key policy rate back into positive territory but the path it takes is more important than the exact date of the first raise, the institution’s chief economist, Philip Lane, said Thursday.
“I think it’s obvious that at some point we’re going to move on rates, not just once, but over time, in a sequence,” he told the think tank (group of reflection) Bruegel.
“When will it start exactly? (..) This question should not be considered the most important,” he added.
While inflation in the euro zone reached 7.5% year on year in March, its highest level since the creation of the single currency, several ECB officials, including Isabel Schnabel, member of the institution’s executive board , plead for a faster end to the central bank’s bond purchase program, starting in July, as a prelude to a rate hike.
Philip Lane, however, believes that the overall trajectory of central bank policy normalization and the definition of the neutral rate, a level where it neither stimulates nor constrains the economy, are more relevant topics.
“A rate of -0.5% (the current deposit rate) is not in line with the inflation target of 2%,” he argues. “If we think inflation will stabilize around 2%, -0.5% is not consistent, zero is not consistent. We know normalization will go beyond that,” he said. he adds. (Report Balazs Koranyi and Francesco Canepa; French version Claude Chendjou, edited by Marc Angrand)