ECB’s Makhlouf: Don’t Expect Rate Hike in 2022, But Must Keep Close Eye on That
24 January 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Saturday said that while he did not anticipate a hike in official borrowing costs this year, that would have to be watched closely.
In an interview with Irish radio station KCLR, Makhlouf, who heads the Central Bank of Ireland, said that ‘we do see inflation falling, it’ll probably - in the euro area - stay over 2% throughout the course of this year, but it’ll fall from the levels it’s been at, where it was at the end of 2021.’
‘The big challenge for us at the … European Central Bank … will be to keep a very close eye on whether there are any … second-round effects of inflation’, he said. ‘So, if, for example, we start to see wages rising without corresponding increases in productivity, that would signal to us the risk that we’re going to get into a bit of a wage-price spiral … So if we see risks of those sorts of second-round effects happening, then we will definitely be taking action at the European Central Bank to manage that.’
‘As we’re now coming out of the pandemic, we’re seeing economies recover, so we may, over the coming years, or we should see monetary policy becoming a bit tighter to what it was over the last two or three years’, he continued. ‘Now what is the pace of that change? I think that’s uncertain and to be seen. At the moment, my own view is I don’t expect interest rates to go up … in 2022, but we’re going to have to keep a close eye on that.’
Makhlouf observed that the Bank of England had already hiked rates and that the US Federal Reserve was expected to do so shortly.
‘But in Europe, I think we’re probably on a slightly slower track to see what you might describe as normalisation’, he added.
Currently high inflation he attributed to base effects, the outpacing of supply by demand and energy prices.
‘And we do see over the course of this year those supply bottlenecks being repaired, those blockages … getting opened up’, he said. ‘So we do see inflation falling during the course of this year.’
Energy prices were ‘a bit more complicated story, but again, we do see that challenge as not persisting’, he said.