European Central Bank Chief Economist Philip Lane said much of the impact on inflation of the recent increases in borrowing costs is yet to be felt.
(Bloomberg) — European Central Bank Chief Economist Philip Lane said much of the impact on inflation of the recent increases in borrowing costs is yet to be felt.
“Monetary-policy actions are clearly tightening financial conditions, reducing credit volumes and altering the behavior of households and firms,” Lane said Thursday. “At the same time, much of the ultimate inflation impact of our policy measures to date is still in the pipeline.”
Decisions taken by officials will return price growth to the 2% target from more than four times that now, he said in a speech in London. Models suggest monetary tightening will reduce inflation by 1.2 percentage point this year and by 1.8 percentage point in 2024, he said.
After the most intensive bout of monetary tightening in ECB history, signs are emerging that policymakers may find it less straightforward to agree on the path ahead. Some say big hikes must in all likelihood persist beyond an already flagged move of 50 basis points next month. Others have floated the idea of more modest steps as inflation retreats.
The former camp includes the likes of Bundesbank chief Joachim Nagel and Latvia’s Martins Kazaks, who’s seen price gains spike past 20% in the Baltic region.
On the other side of the debate, ECB Executive Board member Fabio Panetta said earlier Thursday that raising borrowing costs in small increments would allow for more honed adjustment as previous tightening starts to put a brake on economic activity.
Updated economic projections due in March should determine the size of the rate increase that month, Greek central bank chief Yannis Stournaras said later in the day.
Speaking Wednesday evening, President Christine Lagarde affirmed the plan for March. After that, “we will then evaluate the subsequent path of our monetary policy,” she told European Union lawmakers in Strasbourg.
“Insufficient tightening would result in inflation persistently above our target, while excessive tightening could see overshooting and a return to persistently below-target inflation,” Lane said.
–With assistance from Sotiris Nikas.
(Updates with Greek central bank chief in seventh paragraph.)
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