FRANKFURT – The European Central Bank could raise interest rates back to zero already this year to fight high inflation, Belgian central bank chief Pierre Wunsch said in a magazine interview, joining a growing group of policymakers now openly discussing a rate hike.
The ECB has kept rates in negative territory since 2014 and has not raised them in more than a decade, but a surge in inflation is now making an increase in the minus 0.5% deposit rate increasingly topical.
“Based on the current outlook, so with positive economic growth, we will raise interest rates to 0 by the end of the year,” Wunsch told Belgian magazine Knack. “It’s actually a no-brainer for me.”
“But I have to say that even within the ECB there has been no discussion about raising interest rates,” he added.
Inflation hit a record high 7.5% last month on surging oil prices, but some policymakers still argue that underlying trends are weak and price growth could slip back below the ECB’s 2% target over the medium term.
Wunsch took a different view, arguing that the target, even further out in time, has essentially been met, so it is time for the ECB to roll back extraordinary stimulus.
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He also said that rates could eventually peak at 1.5% or 2%, above the 1% anticipated by markets.
The central bank governors of Germany, the Netherlands and Austria, all considered among the most conservative on the rate-setting Governing Council, have also made the case for a rate hike in recent weeks, suggesting that a discussion about a move will soon be on the agenda.
Wunsch added that Belgium could suffer a recession if it lost access to Russian gas, but that was still a relatively minor price to pay in the current environment.
“That’s not too bad when I see what is happening in Ukraine,” he said. “Even a temporary recession is really just a detail compared to the economic downturn in Ukraine and the thousands of deaths that have already occurred there.”
(Reporting by Balazs Koranyi; Editing by Alex Richardson)