ZEW Economist Friedrich Heinemann on ECB Interest Rate Decision


“ECB Governing Council in the Dark About When to Expect Core Inflation to Fall”

The ECB Governing Council has decided to raise its key interest rates again. This is the fifth rate hike since July 2022. As expected, rates were increased by 50 basis points. The interest rate on the main refinancing operations of banks is now at 3.0 per cent. Professor Friedrich Heinemann, head of the Research Unit “Corporate Taxation and Public Finance” at ZEW Mannheim, has commented on this matter:

“The expected decline in the euro inflation rate in the coming months is the result of no longer rising energy prices and government aid. However, broad inflation dynamics measured by core inflation remain well above the ECB’s inflation target. The Governing Council is currently in the dark as to when a significant decline in core inflation can be expected. Over the past two years, the Council has had to learn how difficult it is to make inflation forecasts for more than a year ahead. Therefore, it is only reasonable that the majority of the ECB Council members want to wait for a significant decline in core inflation before ending interest rate hikes. Only the representatives of Italy and Greece in the ECB Governing Council have spoken out in recent weeks in favour of a wait-and-see approach to interest rates. The fact that it is once again the representatives of highly indebted countries who are advocating this position does not help the ECB to improve its monetary policy reputation. These finance ministers, interested in favourable financing conditions, are obviously trying to get the ECB Governing Council to support their interests.”

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