Voices multiply within the European Central Bank for a decisive intervention on interest rates in view of the summit of next 8 September. The latest is the board member and governor of the Latvian central bank Martins Kazaks according to which the increase must be at least half a percentage point. “Only in this way can we hope to keep inflation at bay,” Kazakas said today. Yesterday it was the French member of the board of directors who spoke Francois Villeroy de Galhau and the German Isabel Schnabel. The governor of the bank of France Villeroy said that thehe commitment of the ECB to act on inflation is “unconditional”: another “significant” rise in interest rates is a necessary step in September. Also the governor of the Finnish central bank Olli Rehm he spoke of the need for a “significant” intervention.
“The risks of recession have increased,” he said Isabel Schnabel, however, asking for strong action to bring inflation back under control. Kazakas and Schnabel are counted among the “hawks” of the European Central Bank’s board of directors, ie more inclined to restrictive monetary policies. A line strongly supported also by the Dutch Klass Knot, by the president of the German Bundesbank Joachim Nagel and from the Belgian Pierre Wunsch. Last July 21 the ECB raised rates, for the first time in 11 years old, 0.5%. A similar action is expected for September which would bring the cost of money to 1% but the pressures for a more consistent rise in the 0.75%.
The attitude of the French Villeroy is usually more neutral de Galhau mThe Italians are in favor of more accommodating monetary policies Ignazio Visco and Fabio Panetta, the Irish Philip Lanethe Spanish Pablo Hernandez De Cos and the Greek Yannis Stournaras. More expansionary monetary policies (therefore with low rates and / or programs for the purchase of government bonds of member countries) they reduce the cost of the debt of member countries, that is what is paid every year in interest on government bonds in circulation. For this reason the representatives of countries with high debts in relation to the gross domestic product tend to prefer and favor them. The downside is that these policies help to foster inflation which hit 8.9% in the euro zone last July. The level considered optimal by the ECB is 2%.
Unlike the Federal Reserve, the US central bank, whose mandate places price stability and economic growth on the same level, in that of the ECB price control holds, at least formally, a priority position. The ECB was in fact modeled on the German Bundesbank, the central bank of Germany, historically very careful to contrast inflation. A rate hike means, more generally, too a higher cost to access loans and mortgagestherefore, less money in circulation and a slowdown in economic activity.
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