ECB Is Much Closer To The Neutral Rate Now, Centeno Says
ECB has raised interest rates to much nearer the level that neither stimulates nor constrains the economy.
(Bloomberg) -- The European Central Bank has raised interest rates to much nearer the level that neither stimulates nor constrains the economy, according to Governing Council member Mario Centeno.
But while some of his colleagues on the Governing Council have focused on the so-called neutral rate, Centeno said the key at the moment is for inflation to reach its peak -- likely in the first quarter.
After that, he told the Bloomberg Portugal Capital Markets Forum in Lisbon on Thursday, monetary policy will become easier and more predictable.
ECB officials are facing the increasing likelihood of a recession as a result of the energy crisis that erupted after Russia invaded Ukraine. But they’re so far refusing to ease off on rate increases, highlighting the need to bring inflation back to their 2% target from more than five times that level at present.
Centeno said the war, not rate hikes, are the driving recession risks, and that shallow recessions “are very difficult to engineer.”
He said a severe downturn can still be avoided but it’s important not to let price expectations become unmoored.
“We really need to act in order not to de-anchor inflation expectations in the medium term,” he said.
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