European Central Bank will probably have to raise borrowing costs again after next week’s increase, though officials must tailor any action to incoming data, according to Chief Economist Philip Lane.
(Bloomberg) — European Central Bank will probably have to raise borrowing costs again after next week’s increase, though officials must tailor any action to incoming data, according to Chief Economist Philip Lane.
“The current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting,” he said in a speech Dublin on Monday. “Exactly what we do in May will be very data dependent,” he said, adding that the ECB shouldn’t be on “autopilot.”
Lane, a former Irish central bank governor, highlighting that the “impact of the cumulative tightening in the monetary policy stance that has already occurred” must be considered as part of the ECB’s meeting-by-meeting approach.
“The exact calibration beyond March should reflect the information contained in the upcoming macroeconomic projections, together with the incoming data on inflation and the operation of the monetary transmission mechanism.”
The ECB chief economist spoke ahead of a March 16 decision which is all but certain to result in another half-point interest-rate hike. Officials have already raised the deposit rate by 300 basis points to 2.5% and markets are now betting it will peak at 4%.
The speech focused on underlying inflation. The core gauge of consumer price growth, which excludes volatile items such as food and energy, last week surged to a new record of 5.6%
Lane listed a number of indicators that will inform rate setters’ decision making between March and May:
- March and April inflation readings
- First estimate of first-quarter gross domestic product
- Sentiment indexes (including PMIs and other indicators)
- ECB surveys including
- Corporate telephone survey
- Survey of monetary analysts
- Consumer expectations survey
- Survey of professional forecasters
- Bank lending survey
- Updated information on employment and wage dynamics
- Incoming data on credit creation and bank lending rates
- Stability program updates that will be submitted in April from euro-area members (in relation to fiscal policy)
(Updates with list of indicators in final paragraph)
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