The euro currency guardians hesitated for a long time, now they are bracing themselves against the high inflation. The Vice President of the ECB makes it clear: the central bank will not be slowed down by recession worries.
ECB Vice Luis de Guindos believes that further interest rate hikes are essential in the fight against record inflation in the euro area. “The slowdown in the economy will not ‘take care of’ inflation on its own,” said the Vice President of the European Central Bank (ECB) in an interview with Portuguese weekly Expresso. “We must continue the normalization of monetary policy. This is something that everyone must understand.”
Turn to higher interest rates
After much hesitation, the ECB initiated the turnaround towards higher interest rates in July. After another interest rate hike in September, the key interest rate in the euro area is now 1.25 percent. The central bank has promised further interest rate hikes, but does not want to commit itself to the exact steps. “We want to be flexible and have room for our decisions,” said de Guindos.
The primary goal of the ECB for the euro area is a medium-term stable price level with an annual inflation rate of two percent. Rising energy and food prices drove inflation in the currency area to a record high of 9.1 percent in August.
Worried about falling big
However, the monetary authorities are also concerned that the economy, which is already having to do with supply bottlenecks and the consequences of the Ukraine war, will be slowed down by normalizing the monetary policy, which has been ultra-loose for years, too quickly. There is great concern that the economy could plunge into recession.
“The forces behind the economic slowdown are very similar to those driving inflation. We have a supply shock that reduces growth while increasing inflation,” de Guindos explained. “The slowdown in the economy will ease demand pressures, which will lower inflation.
At the same time, however, we also need to take monetary policy action to anchor inflation expectations and avoid second-round effects.” Second-round effects are understood to mean a wage-price spiral: If wages rise too much in response to high inflation, this could push prices further up.
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
