Surging inflation urges ECB to hike rates

Photo: EPA Christine Lagarde

The rising consumer prices in the Eurozone are putting pressure on the ECB board of governors to rise interest rates. The final decision will be taken at the banks board meeting later this week, AFP reported. The ECB policymakers are expected to signal if they might start easing their massive pandemic era stimulus.

As the economic recovery gained pace in the 19-nation club, consumer prices surged in August at a speed not seen in the past decade, climbing beyond three percent overshooting the ECB's new two-percent target.

ECB president Christine Lagarde previously promised to "look through" the surge and policymakers expect the rate to rise even further in coming months before falling back. "We are more worried about the inflation rate being too low in the medium term rather than too high," Isabel Schnabel, a member of the ECB's executive board, said last month. Jens Weidmann, the president of the German Bundesbank, urged the ECB in August not to ignore the risk of a higher inflation outlook, and said the ECB must stand ready to gradually scale back its bond-buying.

The ECB last year launched a 1.85 trillion euros pandemic emergency bond-buying programme (PEPP) to help the euro region weather the coronavirus crisis.

The ECB will on Thursday also unveil the latest quarterly growth and inflation forecasts, but analysts expect few surprises. The inflation outlook is predicted to stay roughly unchanged, at 1.5 percent in 2022 and 1.4 percent in 2023 keeping the ECB's 2.0 percent goal well out of reach. Lagarde's news conference on Thursday is expected to earmark signs of future changes in strategy as the Eurozone bounces back from the coronavirus shock. Consequently, the ECB could start by "signalling a 'modest' slowdown" in the pace of the PEPP scheme, from 80 billion euros per month to 60-70 billion euros.

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