European Central Bank member pushes for quick action to raise interest rates

The European Central Bank It must move quickly to raise interest rates in order to tackle rising inflation, according to the head of Finland’s central bank.

His comments come as the US Federal Reserve and the Bank of England tightening cycle intensify pressure on the European Central Bank to follow suit.

“We have a struggle of pressures in monetary policy,” Olli Rehn, governor of the Bank of Finland and member of the European Central Bank’s board of directors, told CNBC’s Silvia Amaro on Friday.

“We are almost between a rock and a hard place, so on the one hand, we have to ensure that the recovery continues. On the other hand, we have to prevent the entrenchment of high inflation expectations and their reflection in the labor market,” said Rehn.

He continued, “In other words, we have to avoid the effects of the second round. Therefore, in my view, we must move relatively quickly to zero and continue our gradual process of gradual monetary policy normalization as we did.”

“Of course, all this on the condition that Russia’s war in Ukraine does not escalate and intensify significantly, which could hamper all prospects and economic recovery.”

Like many central banks around the world, the European Central Bank seeks to steer the eurozone economy through high inflation exacerbated by Russia’s unprovoked attack on Ukraine.

US central bank on Wednesday Raised the benchmark interest rate to a target rate range of 0.75% to 1%. It was the Fed’s biggest rate hike in two decades and the most serious step yet in its battle against high inflation in 40 years.

Shortly thereafter, the Bank of England raise interest rates to its highest level in 13 years. The bank also warned of the possibility of a recession and said that inflation in the UK could soon reach 10%.

inflation in the eurozone It rose to 7.5% in April, which is nearly four times the European Central Bank’s target level, raising questions about how the ECB will react. The next central bank meeting will be held on June 9, and another meeting is scheduled for July 21.

Last month, European Central Bank Vice President Luis de Guindos tried to reassure lawmakers about price hikes, saying the eurozone was on the cusp of peak inflation. The central bank sees price pressures lower in the second half of the year, although energy costs are expected to keep inflation relatively high.

The European Central Bank last raised interest rates in 2011 and has kept the benchmark deposit facility rate, currently at -0.5%, in negative territory for nearly a decade.

When asked if he thought it would be possible for hawkish ECB members to persuade more dovish colleagues to agree to a July rate hike, Rehn replied: “We’ve always had very constructive and intense discussions based on the data coming in and then analyzing what is the best course of action. for work “.

“These deliberations usually lead to unified and consensual decisions and I am sure we will do everything in our power to reach such a comprehensive consensual resolution in June and July – and even then,” Rehn said.

The leaders of the two Scandinavian countries had earlier warned that the security landscape in Europe could “completely changedSince the Russian invasion on February 24.

A decision by both countries on applying to join NATO is expected this month.

“The decisive factor here is of course the aggressive and unpredictable behavior of Russia, its leadership and its war in Ukraine. But at the same time, there is also the broader issue of Russia’s desire to re-establish spheres of influence in Europe and that it does not belong to the Europe of the twenty-first century” .

“These are the reasons why the Finnish people and I increasingly believe that the Swedish people are in favor of defensive alignment, that is, NATO membership,” he continued. My assumption is that the country’s leadership and parliament are moving toward NATO membership.”