ECB Chief Economist Philip Lane said in an FT interview published today, “we’re not yet at the level of interest rates needed to bring inflation back to 2 per cent in a timely manner”, and “it still requires work”.
Under the “vast majority” of the scenarios, “interest rates do have to be higher than they are now”. “Risks are not yet two-sided, and under a wide range of scenarios, it’s still safe to bring interest rates above where they are now,” he said.
“The question is how do you get from mid-threes at the end of 2023 to the 2% target in a timely manner,” Lane said. “That’s where interest rate policy is going to be important… to make sure that the last kilometer of returning to target is delivered.”
Lane also noted, the self-reinforcing low inflation environment in Eurozone was gotten rid of as a “byproduct” of the inflation shock. He added, “the chronic low-inflation equilibrium we had before the pandemic will return.”
