A relatively quick rate hike is possible if inflation remains high, the European Central Bank said.
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Today at 14:16
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The ECB takes into account that the current support program will be phased out early, which means that interest rates can rise quickly. If inflation remains high, support could end as early as the third quarter of this year. In that case, the pace of bond purchases would gradually decline to EUR 20 billion in June, before stalling thereafter. That is faster than originally planned. Last month, the ECB announced its intention to continue to stock billions of government bonds in the third quarter.
That possibility is not completely eliminated. The bank is taking into account a second scenario, in which inflation will decrease and gradually fall to the target level of 2 percent. In that case, the bank will adjust the continuation of the support programme.
splits
The ECB has therefore drawn up two scenarios, the implementation of which depends on the development of inflation. This new approach is necessary because of the ‘uncertain context’ in which the bank has to operate. The war in Ukraine has been described as a turning point for Europe.
The interest rate will only be increased ‘some time after the end of the support programme’. An increase in the third quarter of this year is therefore a possibility. Earlier, the ECB had hinted at an increase by the end of this year. But in recent weeks, uncertainty had arisen about that possibility due to the effects of high energy prices and the war on economic growth.
The ECB finds itself in a difficult dilemma: rising inflation could justify a rapid rate hike, but the crumbling growth seems to make a continuation of the low interest rate policy more logical.
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