© Archyde.com. Energy subsidies fuel inflation?Officials warn: ECB may step up rate hikes
Financial Associated Press, October 15 (Editor Xia Junxiong) European Central Bank Governing Council member, Belgian central bank governor Pierre Wunsch said that as governments race to issue energy subsidies, the European Central Bank may have to raise interest rates more aggressively to quell the record-breaking increase in interest rates. high inflation.
The European Central Bank has raised interest rates twice this year, first by 50 basis points in July, ending an eight-year era of negative interest rates in the euro zone. The central bank then raised rates by 75 basis points in September, the largest rate hike since the European Monetary Union was established.
While the energy crisis has dragged Europe to the brink of recession, the ECB has had to take aggressive action in response to record inflation.
Wunsch, one of the more hawkish officials at the ECB’s policy-making level, said in an interview that it was reasonable for the ECB to raise borrowing costs to 3 percent from the current 0.75 percent. Wunsch said a “subsidy war” with state aid to energy-intensive companies would add to the pressure.
Wunsch pointed out that the biggest concern is that monetary policy is trying to control inflation and fiscal policy is doing more to help people, so there is a risk of a policy mismatch, which will result in higher interest rates and higher deficits, which means The ECB must do its job well.
The comments underscore the challenges of coordinating monetary and fiscal policy at a time when economic growth is slowing and inflation is soaring. And the turmoil in UK financial markets shows what happens when government and central bank policies collide.
Eurozone at risk of rising inflation
ECB officials have been stressing for months that aid to households and businesses should be targeted to avoid further fuelling inflation. Inflation in the euro zone is currently at 10%, already five times the official 2% target.
European countries have set aside hundreds of billions of euros in funding to tackle the energy crisis, and some have called for a Europe-wide tool to support such initiatives and avoid economic collapse.
Wunsc bluntly said that a technical recession (usually defined as two consecutive quarters of output contraction) is the current basic situation in Europe, but recession itself is not enough to control inflation. He added: “The market now expects that we will raise rates to 3 per cent, and we should see that as a possibility.”
Wunsc also said that further dollar strength would heighten the inflation outlook, saying: “The stronger the dollar, the more pressure we face, and whether you like it or not, our monetary policy is influenced by the United States.”