FRANKFURT (Reuters) – The recent turmoil in the eurozone banking sector is likely to dissipate and the European Central Bank (ECB) will then need to continue raising interest rates to curb inflation, Philip Lane said on Wednesday. chief economist of the ECB.
In an interview with the German weekly Die Zeit, Philip Lane also believes that the banks of the 20 eurozone countries are well capitalized and have sufficient liquidity, so that there is no direct repercussion of the tensions banks in the United States and Switzerland on the monetary bloc.
“According to our base scenario, to ensure that inflation falls back to 2%, further (interest rate) hikes will be necessary,” he said. “If the financial stress that we observe is certainly not zero but turns out to be relatively limited, interest rates will have to be raised further,” he added.
The ECB has raised the cost of credit by 350 basis points since July, but gave no guidance for its May 4 meeting due to the financial turmoil.
Philip Lane also believes that a recession is not essential to bring down inflation and that a soft landing for the economy is possible.
“We have lost so much growth momentum during the pandemic that it is possible that the recovery will continue and inflation will decline simultaneously,” he said.
(Report Balazs Koranyi; Claude Chendjou, edited by Blandine Hénault)
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