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‘ECB have made the right decision’ says Herkenhoff

15.06.2023Citation
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“The European Central Bank has made the right decision not to end interest rate hikes prematurely. By doing so, it is staying the course on its monetary policy,” said Heiner Herkenhoff, Managing Director of the Association of German Banks, on today’s ECB Governing Council meeting. 
“Six weeks ago, central bankers had good reason to ‘normalise’ the extent of their interest rate increases. But ending interest rises completely would have put the recent successes in inflation rate expectations at risk. This approach will heighten expectations by both individual households and capital markets investors that inflation will continue to fall.
It is also right that the ECB is basing its decisions on how much and for how long it should raise interest rates on the current data. After all, the risk that inflation in the eurozone will fall too slowly and remain significantly about the two-percent mark next year is still very high. The European Central Bank should therefore firmly counter any speculation that key interest rates will be lowered again next year for economic reasons. If inflation is too high, interest rate cuts will not provide a positive stimulus for the economy, anyway. From an economic perspective, too, the most important approach in an environment such as this is to give people greater purchasing power by cutting inflation.”