2023-04-28 06:28:28
European central banks must “kill the beast” of inflation, without being tempted to take a “pause” in their interest rate hikes, said Friday the director of the International Monetary Fund (IMF) for Europe.
We have to go kill this beast. If you potentially start taking a break, throwing a party prematurely, history is full of examples where you need a second try to rein in inflation and you do damage to the economy a second time, Alfred argued. Kammer, during a press briefing on the European economy organized in Stockholm.
To control a global inflationary wave, but particularly strong in the United States and Europe, Western central banks have raised their interest rates considerably since last year, causing a slowdown in the world economy and concerns for the banking sector.
At a time when inflation is slowing down on both sides of the Atlantic, the IMF calls, however, for priority to continue efforts to contain soaring prices.
For the European Central Bank (ECB), which has already raised its interest rates to the highest since October 2008, in a range of 3% to 3.75%, this must translate into more rate hikes for longer, said Mr. Kammer.
This monetary tightening policy of the ECB must last until mid-2024, in order to bring inflation back to its target (2%, editor’s note) somewhere in 2025, according to the German economist.
For the IMF, the need to slow inflation takes precedence over concerns regarding the banking and financial system, even according to him to absorb the tensions.
And there is no debate regarding it, said Mr. Kammer. We believe the banking system needs to be able to handle stress from that side, he said.
Despite the concerns caused by the recent failures of the American bank SVB or the Swiss giant Credit Suisse, in Europe, we have a healthy banking system, well capitalized, very regulated and well supervised, justified the head of the IMF.
In addition to the efforts of central banks, the Fund is also calling on European countries to reduce their budget deficits and the size of their inflation support measures to accompany the movement.
Asked regarding the risks to growth, Mr. Kammer pointed out that unemployment remained low in Europe and that the European economy was at full capacity.
As for wages, so far there has been no runaway observed with the rise in prices. For the moment, we have seen rather moderate increases (…) and there is a little room for wage increases, estimated the economist.
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