ECB may need to raise interest rates

Frankfurt: European Central Bank executive board member Lorenzo Bini Smaghi said the bank may need to raise interest rates as global inflation pressures mount.

“As the economy gradually recovers and global inflationary pressures arise, the degree of accommodation of monetary policy has to be monitored and, if needed, corrected,” Bini Smaghi said in an interview.

Commodity-price increases will “have an unavoidable impact” and “it is a key challenge for monetary policy to avoid spillovers and maintain inflation expectations in check,” he said.

“This requires the ability to take pre-emptive actions if needed.”

Bini Smaghi’s comments suggest officials are becoming more concerned about inflation, which has already breached the ECB’s 2% limit.

The ECB has held its benchmark rate at a record low of 1% for almost two years, helping to haul the euro area out of recession.