Central bank governors warn of continued inflation spurt – “Raising interest rates is absolutely necessary”

Central bank governors warn of continued inflation spurt – “Raising interest rates is absolutely necessary”

European Central Bank

Several currency watchdogs have spoken out in favor of the ECB raising interest rates again by 0.75 percentage points in the coming week.

(Photo: dpa)

Nicosia The central bank heads of Cyprus and Ireland warn of the dangers of prolonged inflation in the euro area. From the point of view of the Irish central bank governor Gabriel Makhlouf, the economy is now possibly heading for a recession, as he said at a financial conference in Cyprus on Tuesday.

“The euro area faces a difficult combination of high inflation and low economic growth, including the possibility of a technical recession,” he said. Economists speak of a technical recession when economic output falls in two consecutive quarters.

According to Makhlouf, the lesson of history is that difficult situations like this only get worse if action is delayed. “And raising interest rates is absolutely necessary as persistent inflation erodes economic stability,” he added.

According to his ECB council colleague Constantinos Herodotou, the euro central bank must raise interest rates several times in the fight against rampant inflation, as he explained at the conference in Cyprus’ capital Nicosia. The ECB has a medium-term inflation target. It could therefore take up to 18 months for their measures to take hold in the economy, he said.

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Herodotou also warned that prices and wages could continue to drive each other up. The monetary watchdogs must keep this danger in mind, he said. However, such a wage-price spiral is currently not observed.

The next ECB interest rate meeting is on October 27th. The euro central bank has already increased its key interest rates twice this summer by a total of 1.25 percentage points. Several monetary watchdogs had recently spoken out in favor of another very sharp increase in interest rates next week, as in September by 0.75 percentage points.

More: US inflation sends markets on a roller coaster ride – Another sharp rate hike by the Fed more likely

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