The central bank must make up more ground in the next meetings

The central bank must make up more ground in the next meetings

Philip Lane

According to Lane, it would require further tightening of monetary policy if monetary policy measures were seen to be weaker or slower to take effect in the economy.

(Photo: Reuters)

Frankfurt According to its chief economist Philip Lane, the European Central Bank (ECB) must take further measures before key interest rates stop driving the economy. “The Governing Council is fully aware that another path needs to be covered in the coming meetings to move away from the existing highly stimulus level of key interest rates,” Lane said at an event in New York on Tuesday. However, numerical estimates are subject to considerable uncertainty.

The next ECB interest rate meeting is on October 27th. Most recently, several currency watchdogs had demanded that another unusually sharp increase in interest rates by 0.75 percentage points should at least be on the agenda.

ECB President Christine Lagarde recently explained that the ECB’s first goal is to first reach an interest rate level that will neither boost nor slow down the economy. Economists speak of the so-called neutral interest rate level. From the economists’ point of view, this is currently the deposit rate, currently the relevant interest rate on the financial markets, between 1.5 and 2.0 percent. The ECB last raised its deposit rate to 0.75 percent in September.

According to Lane, it would require further tightening of monetary policy if monetary policy measures were seen to be weaker or slower to take effect in the economy. If, on the other hand, monetary policy hits the economy harder or faster than expected, a less tight stance would be necessary.

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In addition, the top economist at the euro central bank argued that interest rate hikes could possibly have a greater effect on the bond market than a reduction in the central bank’s balance sheet, which had been bloated by years of bond purchases. At their recent meeting in Cyprus, the euro watchdogs discussed reducing the balance sheet by reducing bond holdings. In the professional world, this is usually referred to as “quantitative tightening” (QT).

More: Different views in the ECB on the monetary policy course

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