ECB is about to raise rates in 2023, hurting both consumers and economy

According to a statement made on Saturday by the European Central Bank chief economist Philip Lane, there’s a high possibility of the ECB raising the interest rate next year, which will hurt the consumers. It is connected with an attempt to suppress demand, which is currently contributing to already extremely high inflation.

Under the circumstances of inflation rates reaching record figures, an oversized rate increase was performed twice by the ECB in recent months, the bank has also pledged to take further action, as the forecasted price growth is now 2% higher than the target level, even with the long-term forecasts being taken into consideration.

As it was said by Lain at a conference, the ECB actually considers these actions will aid in demand suppressing, and there’s no need to pretend it will be an easy process.

He also added that the bank’s deposit rate of 0.75% is still not high enough, as the rate like this stimulates the economy, so the bank hasn’t reached its target in this direction yet.

Most experts suggest that the level of a neutral rate, which is neither accelerating nor slowing down the economic growth, is withing the range of 1.5% and 2%. Still, the markets have a different opinion on the issue, with the investors forecasting the rates peaking a little above 2.5% in spring.

Over the past several months, Lane linked the inflation levels with a shock evoked by high prices for energy. As monetary policy didn’t have enough tools to deal with such a shock in, the ECB became one of the last large central banks to start raising the rate.

But now the price increase is witnessed to be broadening and getting into every life sphere, while the unchanged consumer demand affect the prices too.

Despite Lane’s statements about possible raising of the at each meeting left for this year and a prospect of an increase next year, the ECB remains open-minded on when it’s necessary to stop the process.

Lane has also noted that the economic situation of the eurozone will probably go flatline over the following months, and a recession is possible, especially considering energy prices and an insufficient supply of natural gas.

He has separately noted in an interview with Irish RTE, that it’s important not to rule out a probability of a technical recession with a possibility of sliding into a mild recession, if the base case is considered to show a little growth.