By
Bhushan Akolkar
January 3rd, 2024
The ECB’s challenges are similar to those being faced by the United Kingdom and the United States.
In the tough battle to combat rising inflation, Pierre Wunsch, governor of the National Bank of Belgium said the European Central Bank (ECB) may need to be more aggressive with its interest rate hike. Speaking to CNBC, Wunsch said there is a need to push the interest rates to a positive territory when adjusted for current inflation levels.
Pushing interest rates to a positive range, according to him will constitute when the region’s economy can start experiencing real change. As inferred by Wunsch, the last 0.75% hike can have no impression on the region’s inflation figure which was pegged at 10% in September and generally expected to hit 8.1% for the 2022 fiscal year.
Without being sure as to when or by how much the interest rate should be raised by the ECB, Wunsch said he will not be surprised if the rate is increased by as much as 3% this time around.
“We’ve been claiming that what happens in Europe is different from the UK, from the US. But over the last six months basically the direction we’ve been taking was not that different. So my bet would be it’s going to be over 2%, and I would not be surprised if we have to go to above 3% at some point,” Wunsch said at the 2022 Annual Meetings of the International Monetary Fund and the World Bank Group in Washington, D.C.
Europe has been a significant hotspot for inflation this year, directly bearing the brunt of the war that broke out between Russia and Ukraine in Eastern Europe. Officials are working hard to control this inflation but the fears of gas supply shortage per the embargo on Russian oil can place additional strain on the region’s economy.
ECB to Raise Interest Rates with Deep Market Knowledge
It is known that Central Banks takes the decisions to drive the economy almost independently, in the case of the ECB, the Austrian central bank Governor Robert Holzmann has revealed that the region’s policymakers have made a conscious decision to “work with the market, to express our views and to be more readable.”
“My impression and my knowledge is that the markets are spot on,” he said. “Talking to the market, hearing from the market also what they expect for the next meeting, I think it will be at a similar level.”
The ECB’s challenges are similar to those being faced by the United Kingdom and the United States. Inflation is hitting these countries and others in a new way and while the US is expected its latest inflation data today, the guidance on how far it will raise its rates when the Federal Open Market Committee (FOMC) meets next will be determined by how much the figure has slumped from the 8.3% recorded for August.