FRANKFURT- Tightening monetary policy to temper the current bout of inflation in the euro zone would be counterproductive, European Central Bank chief economist Philip Lane said on Monday, largely repeating the bank’s recent policy stance.
With the annual inflation rate exceeding 4 percent last month, more than twice the ECB’s 2 percent target, pressure has grown on the bank to abandon its ultra-easy monetary policy stance, and markets have now priced a rate hike next year.
But Lane argued that inflation is driven by temporary factors and ECB policy is ineffective in tackling rapid price growth now, especially as it is likely to fade on its own.
“An abrupt tightening of monetary policy today would not lower the currently high inflation rates but would serve to slow down the economy and reduce employment over the next couple of years and thereby reduce medium-term inflation pressure,” he said in a speech.
“Given our assessment that the medium-term inflation trajectory remains below our 2 percent target, it would be counter-productive to tighten monetary policy at the current juncture,” he added.
ECB President Christine Lagarde and a host of Governing Council members all pushed back at market expectations last week, arguing that conditions for a rate hike as specified by the bank’s guidance were “unlikely” to be met next year.
