ECB chief economist Lane says further rate hikes ahead won’t be ‘painless’


European Central Bank

European Central Bank

The European Central Bank (ECB) represents the central banking entity of the Eurozone which oversees the monetary policy of the bloc. As a growing geographic and economic region, the euro area now comprises 19 countries, which rely on the euro as their national currency. The Eurozone currently includes Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands , Portugal, Slovakia, Slovenia and Spain. In monetary policy, the ECB and the national central banks together constitute the Eurosystem, which mirrors the central banking system of the euro area. The main function of the ECB is to maintain price stability in the euro area and preserve the purchasing power of the euro. Founded in 1998, the ECB is also responsible for ensuring both the safety and stability of the banking and financial system in the EU region and in each member country. In addition, the ECB has also been mandated to oversee the conduct of foreign exchange operations. This includes the management of assets and the management of official foreign exchange reserves of Eurozone countries. How does the European Central Bank affect Forex? ECB policies can have a substantial effect on the value of the currency. euro, notably through changes in interest rate expectations. As a general 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 issues forward guidance that it may raise interest rates in the future, the value of the euro is likely to appreciate. The ECB mainly lowers interest rates when it tries to stimulate the economy.

The European Central Bank (ECB) represents the central banking entity of the Eurozone which oversees the monetary policy of the bloc. As a growing geographic and economic region, the euro area now comprises 19 countries, which rely on the euro as their national currency. The Eurozone currently includes Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands , Portugal, Slovakia, Slovenia and Spain. In monetary policy, the ECB and the national central banks together constitute the Eurosystem, which mirrors the central banking system of the euro area. The main function of the ECB is to maintain price stability in the euro area and preserve the purchasing power of the euro. Founded in 1998, the ECB is also responsible for ensuring both the safety and stability of the banking and financial system in the EU region and in each member country. In addition, the ECB has also been mandated to oversee the conduct of foreign exchange operations. This includes the management of assets and the management of official foreign exchange reserves of Eurozone countries. How does the European Central Bank affect Forex? ECB policies can have a substantial effect on the value of the currency. euro, notably through changes in interest rate expectations. As a general 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 issues forward guidance that it may raise interest rates in the future, the value of the euro is likely to appreciate. The ECB mainly lowers interest rates when it tries to stimulate the economy.
Read this term Chief Economist Philip Lane spoke this weekend about his outlook for future bank rate hikes:

  • The ECB could raise interest rates until 2023
  • “We think it’s going to dampen demand, we’re not going to pretend it’s painless”

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

More from Lanes:

  • “Demand is now a source of inflation
  • rates may continue to increase with each remaining meeting this year and may also increase 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 high energy prices. And that monetary policy is largely ineffective against such supply shocks. To be fair, he was not the only DM central banker to make such an assessment. Lane now recognizes that inflationary growth in prices has widened and that robust consumer demand is also pushing prices higher.


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