FILE PHOTO: On July 21, 2022, signage can be seen in front of the European Central Bank (ECB) building in Frankfurt, Germany.
ROME –
Given the degree of private and public debt in the euro area, the European Central Bank (ECB) must refrain from raising real interest rates excessively, a key Italian policymaker said on Saturday.
Ignazio Visco, a member of the ECB Governing Council and the governor of the Bank of Italy, adding that he did not think a recession was unavoidable in order to lower inflation.
Today, disinflation is undoubtedly important, but given the high levels of private and governmental debt that are prevalent in the euro area, Visco warned the Warwick Economics Summit, “we must be careful to avoid engineering a needless and excessive rise in real interest rates.”
In fact, I’m confident that the way to maintain the legitimacy of our activities is to consistently display wisdom and moderation rather than flexing our biceps in the face of inflation.
Investors and analysts have concentrated on the deposit rate reaching a top between 3.25% and 3.5%, which denotes just one or two movements following the March boost and an end by mid-year.
In accordance with the incoming statistics and their usage in determining the inflation outlook, Visco said the ECB rates must continue to climb “progressively but measuredly.”
Since its high in October, inflation has decreased by around 2 percentage points, and additional decreases are predicted as prices decline.
However, it looks that underlying price rise is persistently high, raising concerns that inflation may remain beyond the ECB’s 2% goal, in part because of the sharp increase in nominal wages.
Despite the remaining considerable (and excessive) liquidity available in the economy, Visco added, “I see no compelling grounds for inflation not to return to goal.”
Regarding the endurance of inflation in numerous nations throughout the 1970s, Visco claimed that it was “extremely improbable” that this would happen again due to significant advancements in monetary policy and modifications to the European economies.