The European Central Bank (ECB) will tighten monetary policy if it sees inflation remaining above its target, but that scenario seems less likely for now, said Philip Lane, the ECB’s chief economist.
Inflation reached 5% last month, the highest recorded in the euro zone in the last 25 years. However, the ECB believes that it will fall below the 2% target again in the fourth quarter of the year, although some authorities consider this to be an overly optimistic scenario.
“We are always clear that we are guided by our intentions of achieving an inflation rate of 2% in the medium term,” he said. “So we will adjust all of our policies — whether it’s the asset purchase, the directed lending program or interest rates — to meet that goal.”
In that scenario, the first decision would be to end asset purchases and only then would the ECB consider raising rates, Lane added.
“I find it less likely to think of a scenario where inflation runs persistently and significantly above 2%, which would require serious tightening,” he said, adding that wage growth remained little concern.
Lane also said that the ECB is becoming more relaxed about the economic impact of the omicron variant of Covid-19.
“It is not turning out to be a factor that is going to influence the activity levels of the year, but rather the activity levels of a few weeks (…) I think that the concern about Ómicron is less than the one we had in December “, he pointed.