The European Central Bank may continue to raise interest rates, but not by as much as last week’s 75-basis-point increase, according to ECB Governing Council member Edward Scicluna.
Scicluna believes 75 basis points will not be the norm in the near future. This is because the major source of European inflation, energy and food, would ease, he noted.
He expressed concern that the present steps being implemented by European countries to relieve the pain of rising energy costs could lead to inflation.
The European Central Bank may raise interest rates again in the near future, but they will be less than last week’s 75-basis-point increase, according to ECB Governing Council member Edward Scicluna.
This will not be the only rate hike, and… there will be several others,” Scicluna, who is also the governor of Malta’s Central Bank, told CNBC’s Silvia Amaro on Monday.
The ECB boosted rates by an extraordinary 75 basis points last Thursday, raising the benchmark deposit rate to 0.75%. The bank also increased its inflation forecast for 2022 to an average of 8.1%.
Scicluna believes 75 basis points will not be the norm in the near future. This is because the major source of European inflation, energy and food, would ease, he noted.
“We expect that the supply side, or source of this inflation, will abate, maybe as a result of events in the United States and around the world, and so commodity and energy prices will fall,” he said.
Scicluna warned that central banks are restricted in their ability to combat supply-side inflation, which Europe is experiencing.
The root of [our] inflation is supply, not demand, as in the United States… and hence, the instruments of any central bank are relatively restricted.”
Other analysts have offered similar views.
Raising interest rates to limit inflation caused by demand is not a solution because higher prices in this situation are caused by supply chain shocks, according to MBMG Group managing partner Paul Gambles in July.
He went on to say that supply is extremely tough to control across industries and businesses, with significant obstacles in “turning the taps back on.
Scicluna expressed fear that the present steps being implemented by European countries to relieve the pain of rising energy costs could lead to inflation.
“We’re sort of recommending that the help that governments are now being pressed to give has to be tailored at least for the vulnerable households,” he said, adding that they “can’t afford to cushion everybody all the time.”
Last week, British Prime Minister Liz Truss proposed a cap on energy bills to assist alleviate the country’s increasing energy costs. A typical home will spend no more than £2,500 ($2,920) each year for the following two years, it was stated.
France established a gas price freeze as well as price limits on electricity. Norway, for its part, pays up to 90% of power bills that exceed a specific threshold.
The cost to the deficit and debt would simply grow… they would worsen, Scicluna explained.
