ECB’s Lane: More Rate Hikes Appropriate if Financial Stress Temporary

22 March 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Executive Board member Philip Lane said on Wednesday that if financial stress proved to be temporary, further rate hikes would be appropriate.

A serious macroeconomic crisis triggered by current events was a distant possibility, the ECB Chief Economist told attendees at the ECB and Its Watchers conference in Frankfurt.

‘[I]f the baseline holds up, if the financial stress turns out to be temporary […] then more rate hikes will be appropriate. So we're crystal clear, there’s no confusion about this’, he said.

With regards to financial instability, there were ‘multiple possibilities’ of how the current situation could impact the economy, he said.

‘One is it is a non-event; it turns out to be a spillover from Switzerland and America and that spillover raises some questions which are then answered […] it'll turn out in two weeks that it's more of a non-event from a macro point of view.’

The ECB had also modelled adverse scenarios, he said: ‘We will always pay attention and monitor. In all of our analyses, we always run scenarios, what happens if you get accelerator effects where things amplify each other, but that's pretty much a left-tail scenario at this point in time.’

‘It's way too early at this point in mid-March […] to take a stand about whether the financial stress is going to persist’, he said.

Asked about the speed of ECB rate hikes going forward, he said that ‘clearly we’ve moved down from 75 to 50bp because the relative considerations have moved, and we will have to see at our upcoming meetings what to do next.’