The International Monetary Fund (IMF) is calling on the European Central Bank (ECB) to continue raising interest rates until the middle of next year. According to Alfred Kammer, head of economic research for Europe at the IMF, this is necessary to bring inflation back down.
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“I must kill this beast. If you possibly take a break, throw a party prematurely, history is full of examples where a second attempt is needed to curb inflation. That way you damage the economy twice,” he pleaded during a press briefing on the European economy in Stockholm, ahead of a meeting with European finance ministers and central bankers.
By making borrowing more expensive, the ECB is trying to curb demand in the economy, which should also reduce pressure on prices.
Inflation for the eurozone was still 6.9 percent in March. That was already slightly lower than in February, mainly due to falling energy prices. But food is still getting more expensive. The IMF therefore calls for continued efforts. The ECB should continue to raise interest rates until mid-2024, then it should be possible to bring inflation in the eurozone back to the target of 2 percent sometime in 2025, according to Kammer.
Kammer emphasized that the ECB’s efforts alone are not enough. European governments will also have to tighten their budgetary policy again, it was said. If governments spend too much and stimulate their economies too much, they threaten to boost inflation again.
Asked about the risks of this tighter monetary policy, the economist pointed out that unemployment in Europe remains low and the European economy is running at full speed. There is little margin for wage increases, it still sounded.
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