Philip Lane says the ECB is in no rush to move forward with rate hikes this year.

The European Central Bank’s chief economist, Philip Lane, has urged that markets should not bet on a rate hike in the euro zone before the end of this year.

Speaking at the Paris School of Economics on Thursday, Mr Lane stressed that interest rate action would come “some time after” the end of the bond purchases that have kept borrowing costs low for governments and businesses, and not immediately as many believe.

Those asset purchases are due to be completed by September, but the Irish economist seemed to hedge himself by saying the Governing Council would only complete the program if the medium-term inflation outlook hadn’t weakened by the third quarter.

That scenario remains a possibility as Mr Lane attributes most of the current inflation to temporary “shocks” in energy markets and global supply chains that may not last more than a few months.

He added that the wording “some time after” gives the ECB “additional room” before taking steps to normalize interest rates

“This phrasing untangles the calendar for a rate hike from the net purchases end date and gives additional room to test conditions after we stop buying bonds and before we take the next step toward normalization,” Mr Lane said.

“The expression ‘eventually’ also expresses the fact that, particularly in an uncertain environment, the period between the end of the net asset purchases and the lift-off is not predetermined.”

The market consensus since February has priced in two hikes in the deposit rate, which currently stands at -0.5 percent, in the fourth quarter. Mr Lane’s rhetoric seems to indicate that the ECB could maintain its accommodative monetary policy stance for longer than many expect.

That would mean low interest rates in the eurozone would last much longer than in the US or UK, whose central banks have already hiked rates to curb rampant inflation.

At 5.9 percent, euro-zone inflation is already at a two-decade high and is sure to rise when new consumer price data is released today. Initial readings from Germany, Italy and France, the three largest economies in the eurozone, are already showing inflation at its highest level for several decades.

Germany’s preliminary numbers, released on Wednesday, were the most dramatic at 7.3 percent, a level not seen since 1974, which will only increase pressure on the ECB to act quickly to avoid an inflationary collapse in the economy Eurozone economy. But Mr Lane said current high levels of “spot” inflation would not last, although long-term expectations of consumer price hikes would likely be reset to the bank’s 2% target.

“While the supply-shock nature of the contributions from energy prices and global tightening means that inflation is unlikely to remain at current high levels, it is also plausible that medium-term inflation will not return below the pre-pandemic target Equilibrium, but could stabilize more around the ECB’s 2 percent target, subject to properly calibrated monetary policy,” he said.

He also left open the possibility of reversing monetary policy should the war in Ukraine seriously affect macroeconomic conditions in the eurozone. Philip Lane says the ECB is in no rush to move forward with rate hikes this year.

Fry Electronics Team

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