ECB believes 4% will be enough to tame inflation

Maintaining interest rates at 4% for a prolonged period may be sufficient to tame inflation, two European Central Bank officials said a day after borrowing costs were raised for what markets and economists think was the last time.

“We believe that with the latest increase the level of interest rates, if kept there for some time, may be enough for inflation to converge to the 2% target,” Vice President Luis de Guindos told Spanish radio station Cope on Friday.

Estonian central bank Governor Madis Muller was even more definitive.

Policymakers “made it clear that, to the best of our knowledge, no further interest-rate hikes are expected in the coming months,” he said in a blog post.

The comments are much stronger than President Christine Lagarde’s remarks following Thursday’s 10th straight increase in the deposit rate. “We cannot say” that rates have reached their peak, she said, though conceded that the focus will probably now shift to how long they stay at such restrictive levels.

A “solid majority” of officials supported this week’s decision, according to Lagarde, who acknowledged that some would have preferred a pause instead. While there had been increasing calls for rates to be left unchanged due to the deteriorating outlook for the euro-zone economy, at 5.3%, inflation remains more than double the ECB’s goal.

Learn more about reprints and licensing for this article.

Leave a Reply

Your email address will not be published. Required fields are marked *