Lane said that individual steps would be all the more powerful the wider the gap to the final interest rate and the greater the risks to the inflation target. In his view, energy prices will remain a key driver of inflation. “It is perfectly clear that the appropriate monetary policy for the euro zone, should continue to take into account that the energy shock remains a dominant driver of inflation developments and the general economic outlook,” he explained.
Inflation in the euro area climbed to a new record of 9.1 percent in August. Energy even went up by 38.3 percent. The economists at the ECB are now assuming that inflation in the currency area will still be above the ECB target at 2.3 percent in 2024.
Villeroy de Galhau: ECB key interest rate could be 2% at the end of 2022
According to ECB Council member Francois Villeroy de Galhau, the European Central Bank (ECB) could have completed the normalization of its key interest rates by the end of the year. According to him, it is not yet certain whether it will have to tighten its monetary policy beyond that. “I think the estimate (for the neutral interest rate R*) for the euro area is under or close to 2 percent in nominal terms. We could get there by the end of this year,” said Villeroy de Galhau in a speech at the International Monetary Fund (IMF ). The ECB must proceed “in a determined but orderly manner”.
Only beyond R* would tightening begin, according to the governor of the Banque de France – “if necessary,” as he specifically added. It is still too early to say at what interest rate the journey will end.
Frankfurt (Reuters) / WASHINGTON/FRANKFURT (Dow Jones)
Image sources: Jorg Hackemann / Shutterstock.com, Petronilo G. Dangoy Jr. / Shutterstock.com