More ECB officials warn about interest-rate rises

ECB chief economist Philip Lane is one of a number of central bank officials to warn of interest rate increases in recent days.

The European Central Bank must be resolute in its response to inflation rates that could reach the double digits later this year, Bundesbank president Joachim Nagel has said.  

“If the data trend continues, more interest-rate increases have to follow — that’s already agreed in the Governing Council,” said Mr Nagel on Sunday. 

"We have to be determined, in October and beyond.” 

Mr Nagel is the latest ECB official to warn about that further increases in borrowing costs are likely for businesses and households. 

Speaking in Wexford on Saturday, ECB chief economist Philip Lane, who was governor of the Irish Central Bank previously, said rates could rise for some time.             

The ECB raised rates by an historic three-quarters of a point this month, and economists predict another such move may follow as policymakers confront record inflation. Mr Nagel argued that borrowing costs are still “somewhat off the levels” needed to calm price pressures.

“We must bring inflation back under control,” he said. 

"We mustn’t let up, even if the economy worsens.” 

The job of central bankers is being complicated by a quickly-deteriorating outlook and threats of energy rationing this winter. A recession still isn’t part of the ECB’s baseline scenario, even though staff have cut their growth projections for the next two years.

Speaking at the German central bank’s open day in Frankfurt, Mr Nagel said momentum will likely slow in the third and fourth quarters, but expressed confidence that the economy can avoid a steep slump. 

Meanwhile, Mr Lane said earlier that the ECB would increase interest rates “several” more times. He was speaking at the gathering of the Dublin Economics Workshop in Wexford. 

On Friday, ECB president Christine Lagarde had said it “absolutely” wants to avoid high inflation leading to excessive upward pressure on wages, and its recent interest-rate hikes should signal its determination to meet its price target,

Eurozone inflation, which reached a fresh record of 9.1% in August, is being driven to a large degree by soaring energy costs resulting from Russia’s war in Ukraine, but the ECB must take action to prevent broader price increases from becoming entrenched, she said at an event in Paris. 

Bloomberg and Irish Examiner