Further interest rate hikes necessary, says ECB Economist Philip Lane

The chief economist said the eurozone is currently in its "most intense phase" of inflation

The ECB will need to hike interest rates further to control inflation which is currently in its "most intense phase", the bank's chief economist Philip Lane has said. 

Speaking to the German newspaper, Die Zeit, Mr Lane argued that the recent turmoil in the euro zone's banking sector is likely to disappear, allowing the ECB to continue targeting an inflation rate of 2%.

"Under our baseline scenario, in order to make sure inflation comes down to 2%, more hikes will be needed," Mr lane told Die Zeit on Wednesday. 

"If the financial stress we see is non-zero, but turns out to be still fairly limited, interest rates will still need to go up."

Additionally, Mr Lane argued that even if inflation is still high, earlier stages of production show moderating price pressures which he said will eventually be passed through to consumer prices.

Asked if the several bank collapses across the US and Switzerland could spread to the eurozone, the chief economist argued that banks were well capitalised with ample liquidity.

Mr Lane also noted that banks have been "prudent in their lending" ensuring that there is no direct read-across from U.S. and Swiss banking tensions to the 20 nation currency bloc.

The chief economist added that even if a similar situation was to arise, that the ECB "is in a position to react," saying the central bank can ensure that there will be no kind of runs on the banks.

"If you look at the earlier stages of production, at the farm gate prices, at the prices of the food ingredients, you will recognise that all of these have turned around," Lane said.

So far, the ECB has hiked interest rates by a combined 350 basis since July 2022, however, it has provided no guidance for its next meeting on the 4th of May.

Lane added that a recession is not necessary to bring inflation down and that a soft landing of the economy was possible.

"We’ve lost so much growth momentum in the pandemic that it’s possible for the pandemic recovery to continue and for inflation to come down simultaneously."

Additional reporting from Reuters.