The European Central Bank’s (ECB) unusually large interest rate hike last week was “appropriate,” said chief economist Philip Lane, signaling future steps would likely be smaller.
With inflation rates far too high in the euro area, a “big step” is needed to accelerate the move away from highly accommodative borrowing costs, Mr Lane said on Wednesday.
The Irish economist is seen as one of the ECB’s most reticent policymakers and is also responsible for drafting the proposals that are put to the Governing Council.
“We anticipate that this transition will require us to continue raising interest rates over the next few meetings,” Mr Lane said.
“The appropriate size of an individual gain will be larger – the further away from the terminal rate, the more skewed the risks to the inflation target.”
While other ECB officials said they would not rule out a further 75 basis point hike, Mr Lane’s comments reinforced the view that future moves will be more dovish if the expected peak of the tightening cycle – known as the terminal interest rate – does not move higher .
However, he also said there are risks to the inflation outlook to the upside. August data out of the US this week beat expectations and cemented expectations for a bigger move by the Federal Reserve at its next meeting.
The Fed meets next week and economists expect a three-quarter point hike to tame inflation.
https://www.independent.ie/business/world/european-central-bank-to-opt-for-smaller-interest-rate-hike-next-time-says-chief-economist-philip-lane-41990140.html The European Central Bank will opt for a smaller rate hike next time, says Chief Economist Philip Lane