- Earlier this month, the ECB raised its key policy rate by 25 basis points to 3.5%, the latest in a series of rate hikes since July 2022, as policymakers sought to revive the eurozone’s record high inflation. became.
- “What I think markets should ask themselves is the timing and speed of a shift in restrictive policy,” Lane told CNBC on Tuesday.
Philip Lane is the chief economist at the European Central Bank.
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European Central Bank chief economist Philippe Lane warned Tuesday against markets overpricing rate cuts in the next two years.
Earlier this month, the ECB raised its key policy rate by 25 basis points to 3.5%, the latest in a series of rate hikes since July 2022, as policymakers sought to revive the eurozone’s record high inflation. became.
Headline inflation across the region was 6.1% annualized in May, down from 7% the previous month. Core inflation, which excludes volatile food and energy prices, was 5.3% year-on-year. Both were well above the ECB’s 2% target.
Speaking with CNBC’s Annette Weisbach at the Sintra Central Bank Conference in Portugal on Tuesday, the former central bank governor of Ireland said the eurozone economy was on the verge of slowing as interest rate hikes permeated and wages tried to catch up with price increases. He said it was in the “adjustment stage”. .
“What I think markets should ask themselves is the timing and speed of a shift in restrictive policy,” Lane said.
“We won’t be back to 2% in a couple of years.
His comments echoed those of ECB President Christine Lagarde, who said in Tuesday’s keynote that the central bank had made “great progress” but was “still unable to declare victory.”
The ECB has raised interest rates by 400 basis points since July 2022. Markets are pricing in another 25 basis points rate hike next month and are considering another rate hike in September, but some economists speculate the ECB may have to reverse its tightening policy. there is This is because rising interest rates will reverse the euro zone economy.
Earlier this month, the Federal Reserve opted to pause its rate hike cycle and keep its target rate unchanged. It was a hawkish tone ahead of two more gains this year.
Lane suggested policymakers should stick to their policies and keep monetary terms restrictive for the time being.
“There will be a period of time where interest rate caps need to be kept in place to prevent another shock away from 2%. Sustainability of caps is very important,” he said.
“Looking at the outlook for the next few years, we don’t see any rapid rate cuts.