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Senior ECB official: Rising rates too quickly could stifle the recovery

A senior European Central Bank official says raising interest rates prematurely could ‘stifle the recovery’, comments that come as inflation in the 19-nation eurozone hits a record high

BERLIN — A senior European Central Bank official said raising interest rates prematurely could “stifle the recovery”, comments that come as inflation in the 19-nation euro zone hit a record high.

The European Union’s statistics office said on January 7 that the annual inflation rate hit 5% in December – the highest level in the euro zone since record-keeping began in 1997, beating the November’s previous high of 4.9%.

This has added to the pressure on the ECB to act on inflation as it has kept interest rates extremely low to stimulate an economy recovering from the depths of the pandemic. At this time, analysts do not expect the bank to raise rates until 2023.

In an interview with Saturday’s edition of the German daily Sueddeutsche Zeitung, Isabel Schnabel, member of the ECB’s executive board, stressed that the bank expected “a significant drop in inflation in the medium term”.

“That’s why we’re not raising interest rates now, as some are calling for,” she said.

The ECB’s projections even foresee a medium-term decline in inflation below the bank’s 2% target, although there is currently “great uncertainty” over the outlook, she said. added.

“That’s why we shouldn’t raise interest rates prematurely, because that could potentially stifle the recovery,” Schnabel said. “But we will act quickly and decisively if we conclude that inflation could settle above 2%.”

She acknowledged, however, that the bank views the current year-on-year figures “with some concern, as they are higher than we initially expected”. But she noted that, calculated over a longer period, inflation has not risen as much as they suggest.

Inflation has traditionally been a particularly acute concern in Schnabel’s native Germany, which has Europe’s largest economy.

ABC News

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