By Marta Vilar – MADRID (Econostream) – European Central Bank Executive Board member Piero Cipollone said on Monday that monetary policy should be “well calibrated,” as raising interest rates in response to a supply shock could weigh on economic growth, adding that inflation was currently consistent with the ECB’s baseline scenario.

In an interview with Italian online information outlet ilsussidiario.net, Cipollone said that “[i]n the event of a supply side shock, such as the oil shock, hiking interest rates so as to stabilize inflation around the target could dampen economic growth that is already affected by a negative shock.”

He said this was the reason why “monetary policy action needs to be well calibrated.”

Cipollone added that central banks had limited scope to act against higher energy prices, but could ensure that such increases did not feed into medium-term inflation expectations.

The risk of economic stagnation combined with a sharp rise in inflation was “rather remote,” he said.

“First of all, there are signs that the crisis could soon be resolved, and even the price of oil seems to reflect that,” he added.

Cipollone noted that the latest data indicated that the euro area economy was more resilient than expected despite its recent slowdown, adding that inflation remained aligned with the baseline scenario in the June projections “and seems to be a long way from the adverse and severe scenarios.”

The ECB would monitor any changes in the economic environment, he said, but noted that there were as yet “no signs” of stagflation.