ECB’s Lane: ‘Current Data Are Indicating That We Should Raise Rates Again’

25 April 2023

By David Barwick – FRANKFURT (Econostream) – Available data make it appropriate that the European Central Bank Governing Council hike rates at its policy meeting next week, Executive Board member Philip Lane said Tuesday.

In an interview with French daily Le Monde, Lane said, ‘For our next Governing Council meeting on 4 May, the current data are indicating that we should raise rates again. This is still not the right time to stop.’

‘Beyond that, I don’t have a crystal ball; it will depend on the economic data’, he continued. ‘But the analysis suggests that it would be inappropriate to leave our deposit rate at the current level of 3%.’

In the wake of the ECB’s 350bp of tightening to date, market and bank interest rates had become ‘much higher’, leading to a ‘strong fall’ in household mortgage demand and a ‘substantial drop’ in corporate investment, he said. The rate hikes have also led to the euro’s appreciation, he said.

‘All of these impacts will continue to filter through the economy – this is going to continue to play out’, he said.

Whilst inflation should subside further, from the perspective of monetary policy, not the decline so far is key, but rather, ‘making sure that we get close to our target of 2% within a reasonable time period’, he said.

This was because of the risk of expectations dis-anchoring as high inflation persists, he said, though he noted that this had not yet occurred.

As for wage growth, this was now ‘well above’ normal, he said, ‘but we expect a slowdown later this year.’

Lane confirmed that a recession in early 2023 had been avoided against the backdrop of higher consumer and business confidence thanks to cheaper energy and reduced supply constraints.

The 1% GDP growth forecast for this year that the ECB issued last month ‘remains reasonable’, he said. Still, he said, uncertainty was high, with ‘many questions about the state of the world economy, about Russia’s war against Ukraine, and about the impact of monetary tightening.’