The European Central Bank must “proceed and act consistently” on interest rate hikes because it continues its efforts to fight high inflation, policymaker Olli Rehn said on Friday.
Rehn, who’s a member of the ECB’s Governing Council and governor of the Bank of Finland, said the central bank’s next decision could be “data dependent”, especially regarding stubbornly high core inflation.
Eurozone core inflation – which excludes volatile energy, food, alcohol and tobacco prices – hit a record high of 5.7% in March, up from 5.6% in February. Meanwhile, headline inflation fell significantly to an annualized rate of 6.9% last month.
“Inflation continues to be way too high, and I’m especially frightened about core inflation,” Rehn Joumanna Bercetche of CNBC told the Spring Meeting of the International Monetary Fund in Washington.
The ECB has raised interest rates by 50 basis points within the last six consecutive policy meetings. Nevertheless, Rehn said the moves have yet to have a big impact.
We’ve got reached restrictive territory and it will be important that we don’t loosen up prematurely.
Olli Rehn
Governor of the Bank of Finland
“I believe it is important that we proceed and act consistently, but we’d like to calibrate our decision on a knowledge dependency approach,” he added.
“We’ve got reached restrictive territory and it will be important that we don’t loosen up prematurely.”
Asked if Europe is ready for a period wherein interest rates might be kept higher for an prolonged time frame, Rehn replied: “I might agree with that.”
He added: “After we hit the height interest rate, perhaps in the summertime … then we’d like to maintain the height interest rate stable for a sufficient time frame to see that core inflation actually continues to say no.”
Rehn’s comments come as various ECB policymakers hinted this week that they may reconsider the trail of interest rate hikes within the wake of last month’s banking turmoil.
The ECB raised interest rates by 50 basis points in mid-March, at the peak of banking tensions, despite some calls from the central bank to carry off.
Nevertheless, this week several members of the ECB’s Governing Council drew attention to the chance of an economic knock-on effect of further hikes.
“Definitely what we experienced with the US and Swiss banking crises has led to a shift in perspectives, and if the outlook changes, we must change our views,” said Robert Holzmann, president of the Austrian National Bank.
Earlier on Friday, Boris Vujčić, president of the Croatian National Bank, reiterated that the bank’s upcoming decision could be “data driven.” Nevertheless, he hinted that a hike of 25 basis points may be on the agenda at upcoming meetings.
“It can be, as we are saying, data depending on what we resolve to do in May, whether we keep on with 50 basis points or move to 25 basis points,” Vujčić said.
— Elliot Smith of CNBC contributed to this report.