BERLIN: Finland’s central bank chief Olli Rehn said Monday the ECB would have to raise its key interest rate as soon as July, as the bloc battles soaring inflation spurred by Russia’s invasion of Ukraine.
The ECB has kept interest rates at rock bottom over the last years to prop up a weak European economy.
But with consumer prices bounding up dramatically, calls have grown for the ECB to end its stimulus and follow other central banks in raising its key rates.
Unlike in the US where wages have risen by six percent for the year, in Europe, the increases have been limited to between 1.5 and 2.5 percent, Rehn noted in an interview with Welt daily.
However, he said there were already signs of such second-round effects of inflation.
“We must therefore prevent the inflation expectations from becoming entrenched,” he said.
“It is necessary that we raise the key interest rate in the third quarter, probably in July,” added Rehn.
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Any hike would be the ECB’s first in over a decade and would lift rates from their current low levels.
But pulling the trigger too soon risks hurting growth at a sensitive time for the European economy because of the war in Ukraine.
ECB chief Christine Lagarde has said that she sees “a strong likelihood” that the bank will hike rates before 2022 ends, if inflation in the eurozone doesn’t abate.
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