© Reuters. ECB Tightening Should Be ‘Step by Step,’ Chief Economist Says
(Bloomberg) — The European Central Bank should raise interest rates step by step so households and businesses can adjust, Chief Economist Philip Lane said.
A long-term strategy is needed to lift borrowing costs from levels that are currently too low, though it wouldn’t make sense for the ECB to adjust rates all in one go, Lane told Spanish state-run broadcaster TVE on Tuesday.
The comments are similar to remarks he made Monday and reaffirm his apparent push back against calls by some officials for a 75 basis-point hike at next week’s policy meeting. The ECB is facing the twin challenges of record inflation alongside the growing likelihood of a recession in the 19-nation euro zone.
Lane said the ECB’s staff predicts lower demand in the second half 2022 as the economy slows — which should curb inflation pressures, despite elevated energy costs. While output may shrink for “some” weeks, Europe is much better-positioned to face a slowdown than it was in 2008, with lower indebtedness and a healthy financial system, he said.
(Updates with Lane comments throughout.)
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