ECB chief economist Lane says further rate hikes on the way will not be “painless”

European Central Bank

European Central Bank

The European Central Bank (ECB) represents the central bank entity in the Eurozone that oversees monetary policy for the bloc. As a growing geographic and economic region, the eurozone now comprises 19 countries, which rely on the euro as their national currency. The eurozone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. In terms of monetary policy, the ECB and the national central banks together form the Eurosystem, which reflects the central banking system of the euro area. The main function of the ECB is to maintain price stability in the euro area and to preserve the purchasing power of the euro. Founded in 1998, the ECB is also responsible for the security and stability of the banking and financial system within the EU region and within each member country. In addition, the ECB has also been given the mandate to oversee the conduct of forex operations. This includes the management of holdings and the management of the foreign exchange reserves of the euro area countries. How does the European Central Bank affect Forex? ECB policies can have a substantial effect on the value of the euro, in particular through changes in expected interest rates. For example, when interest rate expectations rise, currencies tend to appreciate. When interest rate expectations drop, currencies tend to depreciate. For example, if the ECB keeps interest rates unchanged but provides forward-looking indications that interest rates could increase in the future, the value of the euro is likely to appreciate. The ECB mainly lowers interest rates when it is trying to stimulate the economy.

The European Central Bank (ECB) represents the central bank entity in the Eurozone that oversees monetary policy for the bloc. As a growing geographic and economic region, the eurozone now comprises 19 countries, which rely on the euro as their national currency. The eurozone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. In terms of monetary policy, the ECB and the national central banks together form the Eurosystem, which reflects the central banking system of the euro area. The main function of the ECB is to maintain price stability in the euro area and to preserve the purchasing power of the euro. Founded in 1998, the ECB is also responsible for the security and stability of the banking and financial system within the EU region and within each member country. In addition, the ECB has also been given the mandate to oversee the conduct of forex operations. This includes the management of holdings and the management of the foreign exchange reserves of the euro area countries. How does the European Central Bank affect Forex? ECB policies can have a substantial effect on the value of the euro, in particular through changes in expected interest rates. For example, when interest rate expectations rise, currencies tend to appreciate. When interest rate expectations drop, currencies tend to depreciate. For example, if the ECB keeps interest rates unchanged but provides forward-looking indications that interest rates could increase in the future, the value of the euro is likely to appreciate. The ECB mainly lowers interest rates when it is trying to stimulate the economy.
Read this term Chief economist Philip Lane spoke over the weekend about his outlook for the upcoming bank rate hikes:

  • The ECB could also raise interest rates in 2023
  • “We think this will dampen the question, we won’t pretend it’s painless”

(ps Just for clarity, will the pain be for you, not for Lane, K?)

More from Lane:

  • “Demand is now a source of inflation
  • rates could continue to rise at each remaining meeting this year and could also rise early next year
  • a recession cannot be ruled out

    As head of economics at the ECB, Lane had argued for months that the drivers of inflation were the shocks caused by expensive energy prices. And that monetary policy is largely ineffective against such supply shocks. To be fair, he wasn’t the only central banker in DM to make such an assessment. Lane now recognizes that inflationary price growth has widened and robust consumer demand is also driving prices.

    .

Leave a Reply