ECB Boss: 'Don't Cut Interest Rates Too Quickly'
ECB Governing Council Member Warns of Inflation Risks
The European Central Bank (ECB) should resist calls to cut interest rates too quickly, according to Governing Council member Klaas Knot. Knot warned that inflation risks are still present and premature rate cuts could lead to a resurgence of price pressures.
ECB's Rate-Setting Dilemma
The ECB has kept interest rates at record lows to support the economy during the COVID-19 pandemic. However, rising inflation has put pressure on the central bank to raise rates to tame price pressures.
Knot acknowledged the need for rate hikes but stressed the importance of a gradual approach. He argued that raising rates too quickly could stifle economic growth and lead to a "hard landing" scenario.
Inflation Concerns
- Inflation in the eurozone reached a record high of 8.1% in May 2022.
- The ECB's inflation target is 2%, which it has not met since 2013.
- Knot warned that the current high inflation rate is not just a "transitory shock" and could become entrenched if not addressed.
Gradual Rate Hikes
- Knot emphasized the need to raise rates gradually to avoid market volatility and prevent a sharp economic slowdown.
- He suggested that the ECB could consider raising rates by 25 basis points at each of its upcoming meetings.
- This would allow the central bank to assess the impact of rate hikes on the economy and adjust its policy accordingly.
Balancing Growth and Inflation
Knot acknowledged that the ECB faces a challenging task of balancing support for economic growth with the need to control inflation.
He expressed confidence that the central bank can achieve this balance by raising rates gradually and carefully monitoring the economic data.
Sources
- Interview with Klaas Knot, Governing Council member of the ECB
- ECB should not cut rates too quickly, says Dutch central bank chief
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