Three policymakers at the European Central Bank have said the institution may need to further increase interest rates to a level that presents a risk to growth, claiming such a move is necessary to bring prices under control.
The ECB has been raising rates at a record pace to combat double-digit inflation, despite the looming prospect of recession in the euro zone.
Some policymakers are now starting to question whether the benefits of further increases outweigh the negative impacts of a slower economy, but ECB board member Isabel Schnabel believes it will be necessary to raise rates to restrictive territory – a level which stifles growth.
“There is no time for monetary policy to pause,” Schnabel said, speaking at an event hosted by the Bank of Slovenia. “We will need to raise rates further, probably into restrictive territory.”
The ECB has already hiked rates by 200 basis points over its past three meetings, the most aggressive tightening in its history. Conflicting opinions are being expressed by officials whether a third consecutive 75 basis-point hike would be beneficial overall, with a decision set to be made at the bank’s December meeting.
Schnabel’s sentiments were echoed by Slovenian central bank chief Bostjan Vasle and his Slovak counterpart, Peter Kazimir.
“What’s needed in my opinion are further increases in interest rates, and here we’ll most probably have to go beyond the levels which are currently understood as neutral rates,” Vasle said.
Kazimir also believed a move into restrictive territory was needed. “We’ll have to go further, more to the restrictive part,” he said.
The euro zone is widely expected to fall into recession with consumers and companies feeling the effects of surging energy costs. Officials have warned however that the contraction probably won’t be severe enough to reduce inflation, which jumped to a fresh high of 10.7% last month.