The vice president of the European Central Bank, Luis de Guindos, reaffirmed this Friday, in London, that inflation in the euro zone may remain above 2% for some time, although he admitted that price growth has slowed down.
In a speech at King’s College London, De Guindos, who spoke about monetary policy in the euro zone and analyzed the main factors behind the sharp rise in inflation in 2022, which reached 10.6% last October, said that the permanence of inflation above 2% for some time will require that monetary and fiscal policy work in the same direction.
The vice-president of the ECB recalled that energy prices were mainly responsible for the increase in inflation, but also for the drop in the rate of growth of prices in recent months.
Inflation is expected to continue to slow as energy prices fall, De Guindos added, noting that experts point to a drop in consumer price increases to 5.4% in 2023, while in 2024 it could slow down to 3% and 2.2% in 2025.
In addition, the Eurosystem experts have slightly revised downward the outlook for economic growth in the euro area for the next two years, with the expectation that the economy will slow down to 0.9% in 2023, before recovering to 1.5% in 2024 and 1.6% in 2025, with energy prices moderating, he added.
De Guindos explained that in response to the extraordinary rise in inflation in 2022, the ECB has begun to gradually tighten monetary policy to ensure it returns to the 2% target.
“The current environment of high inflation demands that monetary and fiscal policies work in the same direction. As energy prices fall and risks related to energy supply diminish, it is important that government support measures be reduced related to energy costs to avoid increasing inflationary pressures in the medium term,” he warned.
The ECB vice-chairman also said that future ECB decisions “will ensure that key ECB interest rates are raised to sufficiently restrictive levels so that inflation returns to the 2% medium-term target in time and remains at that level for the next year.” time it lasts.” as long as it takes.”
Last June, the ECB decided to raise the interest rate by a quarter of a point, to 4%, the highest rate since 2008, considering that inflation “remains very high for a long time” and is “probable”. that interest rates rise even more in July, as recently admitted by the central bank of the euro zone.
The Governing Council raised the reference rate (which charges banks for loans) to 4% and also raised the rate of the credit facility (which lends to banks) by 0.25 basis points to 4.25 % and the rate of the deposit facility (which pays banks for excess reserves), at 3.50%.
Source: TSF
