By Marta Vilar – SINTRA, Portugal – European Central Bank Governing Council member Alexander Demarco said on Wednesday that policymakers should not rush into further monetary tightening, citing the sharp decline in oil prices.
On the sidelines of the ECB Forum on Central Banking in Sintra, Portugal, Demarco, who heads the Central Bank of Malta, told Reuters that “[i]n such an environment of moderating price pressures, it would be prudent not to rush into policy action.”
Lower energy prices should quickly reduce inflation expectations and moderate wage demands, particularly as real wage growth has remained positive despite inflation rising above 3%, well above the ECB’s 2% target, he said.
According to Demarco, the only case for frontloading further rate hikes would be if indirect or second-round effects proved stronger than initially expected, inflation expectations became deanchored or wage demands accelerated.
“We’re seeing none of these, so given current conditions with oil prices returning to around pre-conflict levels, we can afford to wait for the next set of projections rather than risk hurting unnecessarily economic growth with another hasty rate hike,” he said.
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