BERLIN: The European Central Bank may raise interest rates at its current pace for a “period of time” to curb inflation, said Vice-President Luis de Guindos.
“We have no choice but to act,” he said in an interview with Le Monde paper published on Thursday. “Increases of 50 basis points may become the new norm in the near term.”
“If we do nothing, the situation would be worse because inflation is one of the factors behind the current recession,” The steps the ECB had taken so far were going to have an impact on inflation, “but we still need to do more”.
The ECB last week eased the pace of its interest rate hikes but stressed that significant tightening remained ahead while laying out plans to drain cash from the financial system as part of a dogged fight against inflation.
De Guindos also said he was concerned that markets could underestimate the persistence of inflation and that they might consider fiscal policy to be incompatible with monetary policy.
ECB tipped to follow Fed with smaller rate hike
Banks have a solid capital position and can withstand a shock, de Guindos said, adding that he had more doubts about non-banks, notably hedge funds, which have highly illiquid assets and accumulated risky assets.
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