Berlin, Jan. 16 (BNA): A senior European Central Bank official said a premature rate hike could “choke the recovery”, comments that come as inflation in the 19-nation eurozone hit a record high.
The European Union’s statistical office said on January 7 that the annual inflation rate rose to 5% in December – the highest level in the euro zone since record-keeping began in 1997, breaking the previous record of 4.9% from November, the Associated Press (AP) reported. ). .
This increased pressure on the European Central Bank to act on inflation as it kept interest rates too low to stimulate the economy to recover from the depths of the pandemic. At the moment, analysts do not expect the bank to raise interest rates until 2023.
In an interview with Saturday’s issue of German daily Sueddeutsche Zeitung, ECB Executive Board member Isabelle Schnabel stressed the bank’s expectations that “inflation will decline significantly in the medium term”.
“That is why we are not raising interest rates now as some are claiming,” she said.
She added that the ECB’s forecast expects inflation in the medium term to fall below the bank’s 2% target, although there is “significant uncertainty” about the outlook.
“This is why we shouldn’t raise interest rates prematurely, because that could stifle the recovery,” Schnabel said. “But we will act quickly and decisively if we conclude that inflation may stabilize above 2%.”
She acknowledged, however, that the bank views the current annual figures “with some concern, as they are higher than we initially expected”. But she noted that inflation, when calculated over a longer period, has not risen as much as they suggest.
Inflation has traditionally been a particularly acute concern in Schnabel’s native Germany, which has the largest economy in Europe.
MI