“The European Central Bank (ECB) will raise interest rates as high as necessary to bring inflation back to 2%,” Bank of Italy Governor Ignazio Visco stressed to Bloomberg, adding that ECB policy will depend on further moves in economy.
“I don’t think we can indicate right now what the rate will be or whether it will be 3.5%, 3.25% or 3.75% because it really just depends on the data,” Visco said, adding that the goal is to return to two percent inflation in the medium term. And if they need to be more restrictive, they will be.
The European Central Bank has raised the rate to 2.5% since July. It intends to increase it again in March, and ECB economists have indicated that the tightening will not stop even in the spring.
The ECB’s case for further aggressive action was further strengthened by data that showed inflation was more resilient than expected. “We have to be sure that core inflation will not remain as high,” the Italian central banker said, stressing that this could lead to wage increases beyond what is compatible with the medium-term 2 percent inflation rate he wants to achieve, according to Bloomberg.
Even the big European economies are experiencing a crisis
Inflation in Europe’s two major economies is putting pressure on the European Central Bank and regional policy. Specifically, in France and Spain, inflation unexpectedly increased over the last month, and this will most likely cause a further increase in ECB interest rates. Consumer prices in France jumped a record 7.2% year-on-year in February, Spain saw a 6.1% increase.
Data from the eurozone’s second- and fourth-largest economies are expected to solidify the decision on further rate hikes. Traders are predicting further increases of up to four percent, according to Bloomberg.
The current rising prices are also becoming the most difficult burden for politicians. French President Emmanuel Macron is facing mass protests over his plans to overhaul pensions. In Spain, Prime Minister Pedro Sanchez’s government will come under increased pressure to keep prices under control in an election year.
