Full Impact of ECB Hikes ‘Will Only Play Out Over the Next Couple of Years’, Lane Says

12 July 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – The full impact of the European Central Bank’s rate hikes will likely take years to fully unfold, ECB Executive Board member Philip Lane said on Wednesday.

Speaking on a panel in Boston, Lane, the ECB’s chief economist, said that he expected the pass-through of monetary policy to banks to strengthen in the coming months, as Eurozone lenders were still adjusting to higher rates.

‘The typical lags in monetary transmission mean that the full economic impact of the considerable monetary tightening over the last year will only play out over the next couple of years’, he said.

‘The banking channel is likely to further strengthen in the coming months’, he added, noting that ‘transmission will continue to strengthen with the ongoing repricing of bank funding, while the repricing of maturing fixed-rate loans will place further upward pressure on aggregate lending rates.’

Furthermore, the decline in liquidity due to the further repayment of TLTROs and the shrinking of the APP portfolio would ‘further strengthen transmission via the banking channel in the coming months’, whilst ‘any deterioration in the macroeconomic environment would also reinforce the banking channel by reducing loan demand and increasing credit risks’, he said.