# ECB should raise rates at steady pace, chief economist says
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-08-29
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: ECB Chief Economist Calls for Steady Pace in Rate Hikes
Meta Description: Philip Lane of the European Central Bank emphasises the importance of a measured approach in raising interest rates to maintain flexibility and manage
URL: https://financedigest.com/ecb-should-raise-rates-at-steady-pace-chief-economist-sayshtml

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FRANKFURT (Reuters) -The European Central Bank should raise interest rates at a “steady pace” until the end of its hiking cycle, partly to maintain room to correct the policy path if circumstances change, ECB chief economist Philip Lane said on Monday.

The ECB raised rates by 50 basis points to zero in July.

While a similar move was expected in September until very recently, a host of policymakers have made the case for a larger hike due to the worsening [inflation](https://www.financedigest.com/greek-eu-harmonised-inflation-rises-to-3-5-y-y-in-july.html) outlook.

A steady pace – that is neither too slow nor too fast – in closing the gap to the [terminal](https://www.financedigest.com/exxon-mobil-to-sell-majority-stake-in-italy-lng-terminal-to-blackrock.html) rate is [important for several reasons,”](https://www.financedigest.com/despite-the-headwinds-investors-have-important-reasons-to-be-cheerful.html "DESPITE THE HEADWINDS, INVESTORS HAVE IMPORTANT REASONS TO BE CHEERFUL") Lane said, without expressing a preference for the Sept. 8 [policy decision](https://www.financedigest.com/asian-shares-rise-dollar-dips-ahead-of-fed-policy-decision.html "Asian shares rise, dollar dips ahead of Fed policy decision").

The appropriate size of the individual increments will be larger the wider the gap to the [terminal](https://www.financedigest.com/exxon-mobil-to-sell-majority-stake-in-italy-lng-terminal-to-blackrock.html) [rate and the more skewed the risks to the inflation](https://www.financedigest.com/uk-inflation-rate-unexpectedly-rises-to-10-4-in-february.html "UK inflation rate unexpectedly rises to 10.4% in February") target,” he told a conference in Barcelona.

While the [“terminal”](https://www.financedigest.com/exxon-mobil-to-sell-majority-stake-in-italy-lng-terminal-to-blackrock.html) rate is an open question, policymakers have said the ECB should get to the neutral rate, which neither stimulates nor cools the economy, somewhere around the [turn of the year](https://www.financedigest.com/2043-the-year-britain-will-turn-cashless.html "2043: The year Britain will turn cashless"). This rate is estimated at around 1.5% to 2%, [suggesting a hike](https://www.financedigest.com/dollar-firms-after-u-s-labor-data-suggests-more-rate-hikes.html "Dollar firms after U.S. labor data suggests more rate hikes") at every remaining policy meeting this year.

While upside risks to [inflation](https://www.financedigest.com/high-inflation-recession-risk-widen-ecb-dilemma.html "High inflation, recession risk widen ECB dilemma") are currently more intense than downside risks, if the incoming data … call for a downward shift in the [terminal rate](https://www.financedigest.com/dollar-jumps-as-powell-flags-higher-terminal-rate.html "Dollar jumps as Powell flags higher terminal rate"), this would be easier to handle under a step-by-step approach,” Lane said.

A multi-step adjustment [path towards the terminal rate](https://www.financedigest.com/bank-of-england-officials-split-over-future-path-for-rates.html "Bank of England officials split over future path for rates") also makes it easier to undertake mid-course corrections if circumstances change.

Lane also noted that even if current [inflation](https://www.financedigest.com/greek-eu-harmonised-inflation-rises-to-3-5-y-y-in-july.html) is high, indicators of longer term expectations remain close to the ECB’s 2% target as economic players appear to understand that temporary factors behind the [surge](https://www.financedigest.com/explainer-oil-price-surge-changes-ecb-narrative-only-at-the-margins.html "Explainer-Oil price surge changes ECB narrative only at the margins") will fade and the ECB will do its job.

(Reporting by Balazs Koranyi; editing by John Stonestreet and Andrew Cawthorne)


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