ECB should be cautious about further rate hikes-Visco
2023.02.11 08:18
ECB should be cautious about further rate hikes-Visco
By Kristina Sobol
Budrigannews.com – A top Italian policymaker said on Saturday that the level of private and public debt in the euro area necessitates the European Central Bank (ECB) not to raise real interest rates too much.
Ignazio Visco, a member of the ECB’s Governing Council who is also the governor of the Bank of Italy, stated that he did not think that inflation could be reduced without a recession.
Since July, the European Central Bank (ECB) has promised a 50 basis point increase in interest rates for March.
Visco stated at the Warwick Economics Summit, “Today, disinflation is obviously needed, but given the levels of private and public debts that are prevalent in the Euro area, we must be careful to avoid engineering an unnecessary and excessive rise in real interest rates.”
In point of fact, “I am convinced that the credibility of our actions is preserved not by flexing our muscles in the face of inflation, but by continuously demonstrating wisdom and balance.”
Investors are uncertain about the extent of further increases because the ECB has left its options open for actions after March.
Economists and investors have focused on a deposit rate peak of 3.25 percent to 3.5 percent, implying only one or two moves after the March increase and a halt by the middle of the year.
Given Italy’s enormous debt, politicians have expressed concern about the impact of rising interest rates.
“In a progressive but measured way, on the basis of the incoming data and their use in the assessment of the inflation outlook,” Visco stated, “the ECB rates must continue to rise.”
Since its peak in October, inflation has decreased by approximately 2 percentage points, and as prices fall, further decreases are likely.
However, despite rapid nominal wage growth, underlying price growth appears to be stubbornly high, raising concerns that inflation could remain above the ECB’s 2% target.
Visco stated, “In spite of the still abundant (and excessive) liquidity present in the economic system, I see no compelling reasons for inflation not to return to target.”
Visco stated that significant advancements in monetary policymaking and changes in European economies made it “very unlikely” that such a situation would occur again when he looked at the persistence of inflation in many nations throughout the 1970s.
