The European Central Bank will continue to raise interest rates in its upcoming meetings. This is necessary in order to limit growth and reduce inflation which has been much too high, Olli Rehn, chief of the Finnish central bank, stated on Wednesday.
Although the ECB raised interest rates by 2.5 percent since July and has promised “a steady pace of increases over the next months”, some policymakers are beginning to suggest that a peak may soon be in sight given a looming economic recession.
Rehn said that policy rates would still need to go up significantly during a webinar hosted by the Peterson Institute for International Economics. This means that there will be significant rate increases at the winter’s last meetings.
With the exception of the Bank of Japan, most central banks have raised rates rapidly to combat a historic rise in inflation. The ECB was criticized for being too slow.
Although most policymakers will reject the argument, claiming that it took time for a decade to remove stimulus from the economy, Rehn suggested some criticism might be valid.
Rehn stated that “with the benefit of hindsight there may have been some truth to this argument,” at the very least, from the perspective that more policy room could be created in order to respond if the economy of the euro area falls into recession.”
Rehn said that Russia’s invasion of Ukraine created uncertainty which justifies prudence.
Although the 20-nation Eurozone will experience a recession in the winter months, the economy seems more resilient than expected. The downturn could be less severe and shorter than anticipated.