ECB’s Rehn: Barring More Shocks, Logical for ECB to Start Hiking Next Year
24 January 2022
By David Barwick – FRANKFURT (Econostream) – Absent any further shocks to the economy, the European Central Bank could be expected to start hiking interest rates next year, ECB Governing Council member Olli Rehn said on Saturday.
In an interview with German business daily Handelsblatt, Rehn, who heads the Bank of Finland, said that given ‘exceptionally high uncertainty’, it was ‘better to proceed gradually and then make adjustments when we have more clarity and more reliable data.’
The decisions of the next Governing Council meetings will depend on the data, he said, adding that he expected economic developments to remain ‘relatively good’.
That this would clear the way for interest rate hikes in 2023 ‘seems logical to me if there are no new economic disruptions’, he said.
‘I assume that the drivers of inflation will ease in the course of the year and that price increases should be around 2% in the next two years, according to our forecasts’, he said. ‘But the uncertainty of the forecasts is high because many factors, from Omicron to geopolitical turbulence in the energy market, are currently at play.’
The assumption that the medium-term price of Brent oil would be $70 ‘does not seem to me to be an unrealistic estimate’, he said.
‘The so-called second-round effects are decisive’, he said. ‘The question is whether the high prices lead to correspondingly high wage increases. So far, at least, we have not seen this on a broad scale.’
Europe’s monetary authorities did not expect generalised labour market bottlenecks ‘at least in the foreseeable future’, he said, but are ‘watching the collective bargaining very closely.’