The European Central Bank could hike interest rates this year, one of its top officials said, if Russia’s war in Ukraine leads to further rate hikes.
Rank Elderson, a member of the ECB’s six-strong Executive Board, which plays a central role in decision-making, told an Irish event today that he “does not rule out a lift-off later this year”.
Earlier this month, the ECB hinted that it could raise interest rates as early as September if inflation continues to rise.
At the time, the ECB said a rate hike would only come “some time after” the end of emergency bond purchases, which could be halted in the third quarter of the year.
Mr Elderson said the sentence was deliberately left open to “interpretation”.
“I think we’ve made it clear that ‘eventually’ — which, of course, as you know, you could say, is terminology subject to interpretation — is a broad expression for some time,” Elderson told an institute for international and European Affairs (IIEA) event on Thursday.
“That can mean a week. That can be several months. I would say that I do not rule out a start later this year.”
The UK central bank has hiked interest rates twice, while the US Federal Reserve raised interest rates for the first time last week, signaling major rate hikes ahead.
Several ECB members, including central bank governors from the Netherlands, Germany, Austria and Latvia, have been pushing for a first rate hike – a “lift off” – later this year.
Since taking office in 2020, Mr Elderson, a Dutchman, has not sided with either camp and on Thursday reiterated the ECB’s mantra that it would “act on the basis of evidence and on the basis of incoming data”.
Any rate hike will be a trade-off, Mr Elderson said, which could hurt growth – although he predicted gross domestic product (GDP) will continue to rise across the bloc.
“As for risks to growth, yes, they are sloping to the downside. We’ve recalibrated our growth outlook for this year, but we still expect fairly sizeable, robust growth this year.”
He said the ECB’s forecasters were doing their best but making predictions during the war was “something that is very difficult”.
Annual inflation in the 19-member currency zone hit a euro-era high of 5.9 percent in February, with energy prices rising more than 30 percent.
Irish inflation was 5.6 percent in February (5.7 percent according to the harmonized EU measure) but could peak at around 8.5 percent this summer, according to the Economic and Social Research Institute.
According to calculations by KBC Bank, price increases could wipe away up to 2,000 euros a year from the average household income.
Eurozone consumer confidence fell 10 points in March to a level not seen since the pandemic began.
According to ING economist Bert Colijn, high inflation combined with low wage growth has led to the biggest fall in real wages in the eurozone in at least 50 years.
EU Economy Commissioner Paolo Gentiloni said this week that while it is too early to quantify the impact of Russia’s war on Ukraine, the EU forecast for 4 percent GDP growth in 2022 “needs to be revised downwards”. .
The European Central Bank estimated – before the war – that energy price shocks could hurt GDP growth by about 0.5 point in 2022.
The Irish economy is set to grow 6.2 per cent GDP, according to ESRI, with the domestic economy expanding 5 per cent this year, a slight downward revision of previous forecasts.
https://www.independent.ie/business/world/ecb-does-not-exclude-a-rate-rise-this-year-41482525.html The ECB is “not ruling out” a rate hike this year.