Bloomberg
The European Central Bank (ECB) will raise borrowing costs next month by at least a half-point as inflation pressures worsen, according to Governing Council member Gediminas Simkus.
“Based on data I see now, the inflationary trends are intensifying,†the Lithuanian central bank chief told reporters on Monday in Vilnius. “There are a few options on the table†for the interest-rate increase in October, the lowest of which is 50 basis points.
Other factors will also influence decision-making — including price expectations and employment, he said.
This week will see release of September inflation data that are expected to set another record at almost five times then ECB’s 2% target for price growth over the medium term. Simkus’s Latvian colleague, Martins Kazaks, said last week that he currently favours a repeat of this month’s historic 75 basis-point hike.
The fear is that acting too aggressively will worsen the downturn looming over the 19-nation euro-area economy. German business confidence deteriorated further this month, figures published Monday by the Ifo institute showed. Ifo President Clemens Fuest said Europe’s biggest economy “is slipping into recession.â€
Speaking later to Bloomberg, Simkus said a contraction in Europe would “have a dampening effect on inflation.†But, he added, that “doesn’t mean the Governing Council shouldn’t take decisions.â€
They could include paring back the trillions of euros of bonds the ECB accumulated during recent crises — a process known as quantitative tightening.
“We shouldn’t waste time in delaying talks, discussions and planing on QT,†Simkus said. “It’s an important issue. It’s one instrument in normalizing monetary policy.â€