European Central Bank chief economist Philip Lane on Monday advocated a “steady” pace of raising interest rates to deal with high inflation, countering speculation of more aggressive action as early as September suggested by other central bankers .
Cumulatively, a rate hike will generate fewer adverse reactions, especially on price stability, if it takes the form of a calibrated series of several steps rather than a smaller number of larger rate increases, said Mr. Lane in a speech to Barcelona.
According to this influential member of the ECB’s Governing Council, a steady pace of increases that is neither too slow nor too fast is important in order to close the gap between the current rate and the so-called neutral rate which neither stimulates nor slows down the economy.
His remarks will fuel the debate on the future actions of the institution which already raised its three main interest rates by half a percentage point at the end of July to bring them between 0% and 0.75%, a first in addition to eleven years to curb inflation pushed up by the war in Ukraine.
While observers expect another rate hike at the next meeting on September 8, several monetary officials believe that the risk of being too cautious about inflation is greater than that of hitting hard with rate hikes. brands.
It is necessary to act with determination to fight inflation, even at the risk of weaker growth and higher unemployment, pleaded Saturday Isabel Schnabel, member of the executive board of the ECB, during the meeting in Jackson US Federal Reserve hole.
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Following this intervention the probability of a move of 75 basis points increased in September, according to Frederik Ducrozet, chief economist at Pictet Wealth Management.
Banque de France Governor Franois Villeroy de Galhau also defended sustained and determined action by the ECB to prevent higher inflation expectations from forcing aggressive rate hikes.
Mr. Lane also confirmed on Monday that in a highly volatile economic environment, the ECB was changing its communication strategy of announcing the future trajectory of its rates in advance and was entering a new phase with a meeting-by-meeting communication approach.