ECB’s Herodotou: ‘Broader and Intensified Inflation Pressures … Could Require Quicker Rate Moves’
8 July 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Constantinos Herodotou on Friday said that inflation in excess of 2% was not per se grounds to hike official borrowing costs.
In a speech at the 26th Annual Economist Government Roundtable, Herodotou, who heads the Central Bank of Cyprus, said, ‘It is expected that the euro area's high inflation will persist in the near term.’
‘For the first time after eleven years, we intend to increase our official rates by 25 basis points in July, and if inflation outlook persists or deteriorates, a bigger increase will be considered for September’, he said.
Post-September, inflation prospects and data will set the pace of gradual continued normalisation, he said. ‘Broader and intensified inflation pressures that would threaten to de-anchor inflation expectations could require quicker rate moves’, he said.
June’s record-high HICP of 8.6% strengthened ‘the case for further increases as the rising prices continue to erode economic sentiment in the euro area’, he said.
‘…acting too little and too late could necessitate acting more aggressively which could impact future growth’, he cautioned.
As it hikes, the ECB must ‘remain attentive of unwarranted upward pressures in the sovereign yields of euro area jurisdictions’, he urged, noting that an anti-fragmentation tool was being designed.