rising too fast can stifle recovery

BERLIN – A senior European Central Bank official says prematurely raising interest rates could slow the recovery, while inflation in the euro area of ​​19 countries has reached a record pace.

The European Union’s Statistical Office said on January 7 that annual inflation rose to 5% in December top level in the eurozone since the start of registration in 1997, breaking the previous record of 4.9% set in November.

That increased pressure on the ECB to tackle inflation, as it has kept interest rates ultra-low until stimulate an economy recover from the depths of the pandemic. At the moment, analysts expect the bank to raise interest rates only in 2023.

In an interview with the Saturday edition of the German daily Sueddeutsche Zeitung, ECB board member Isabel Schnabel emphasized the bank’s expectation “that inflation will fall significantly in the medium term”.

“That’s why we’re not raising interest rates now, as some are asking,” she said.

The ECB’s projections foresee that inflation will fall even below the bank’s 2% target in the medium term, although there is currently “great uncertainty” about the outlook, she added.

“That’s why we shouldn’t raise interest rates prematurely, because that could potentially choke the recovery,” Schnabel said. “But we will act quickly and decisively if we conclude that inflation could exceed 2%.”

However, she acknowledged that the bank is viewing current year-over-year figures “with some concern as they are higher than we initially expected”. But she noted that, calculated over a longer period of time, inflation has not risen as much as they suggest.

Inflation has traditionally been a particularly acute problem in Schnabel’s native Germany, which has the largest economy in Europe.

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