The European Central Bank should lift its key interest rate twice this year to combat an energy-driven inflation surge, but should then reverse these moves in 2027, the International Monetary Fund’s European Department chief said today.<\/p>\n
“Under our reference scenario, we would expect the ECB to raise rates by about 50 basis points in 2026 in order to maintain a neutral monetary stance,” Alfred Kammer, the head of the IMF’s European Department, told Reuters.<\/p>\n
“Then, in 2027, rates could come down again. If you want to keep the real policy interest rates constant, you would need to increase the nominal policy rate a bit,” he said on the sidelines of the IMF and World Bank spring meetings in Washington.<\/p>\n
“That is what our models, and we expect the ECB models, would recommend. But we are so uncertain, that I would not emphasise this is our recommendation for the ECB. This is not set in stone. This is just a model-based recommendation, based on where we are today,” he said.<\/p>\n
The ECB’s main interest rate is currently set at 2%.<\/p>\n
Kammer said the ECB’s response was complicated by the fact that the problem was a shortage of supply, rather than a rise in demand, which would have been much easier to deal with.<\/p>\n
The closure of the Strait of Hormuz as a result of the US-Israeli war with Iran has reduced global oil and gas supply by a fifth, sending energy prices everywhere soaring, and prompting cuts in economic growth forecasts and higher inflation projections.<\/p>\n
“The price shock is going to depress demand and you could be in a scenario where the price shock depresses demand sufficiently that you actually don’t need central bank action,” Kammer said.<\/p>\n
“The ECB is in a much better position (than some other central banks) because inflation expectations are anchored. They have risen, not on a five-year basis, but somewhat on a one-year basis, and that’s basically what you then try to compensate with the nominal policy line, this one-year increase in inflation expectations,” he said.<\/p>\n
“We don’t expect inflation expectations are going to de- anchor, but you need to be vigilant, because you want to avoid second-round effects,” Kammer said.<\/p>\n","protected":false},"excerpt":{"rendered":"The European Central Bank should lift its key interest rate twice this year to combat an energy-driven inflation…\n","protected":false},"author":2,"featured_media":403650,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[72,113,61,60],"class_list":{"0":"post-403649","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-ie","11":"tag-ireland"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/403649","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=403649"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/403649\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/403650"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=403649"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=403649"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=403649"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}