Too early to raise hike rates says ECB

THE euro-area’s economic improvement in recent months isn’t yet sufficient reason to start a shift to tighter monetary policy, European Central Bank executive board member Peter Praet said.

Tighter policies would mean cutting back on the cheap cash pumping through banks, and ultimately higher interest rates. It’s something German central banker in particular are keen to see.

However, speaking in Brussels, Mr Praet pointed to stillweak measures of inflation that strip out the effect of volatile elements like food and fuel, and signalled that higher wage hikes will have to arrive in order to durably push price growth up.

“After a prolonged period of exceptional monetary policy accommodation, any change in our policy stance should be gradual,” Mr Praet said, supporting the stance taken by ECB President Mario Draghi last week.

“It should be motivated by sufficient evidence that the present indications of an acceleration in activity find confirmation in hard data and that a more robust growth feeds through into a sustainable adjustment in the path of inflation.”

The ECB’s leadership is holding the line for now against calls for a withdrawal from the ultra-loose monetary policy that’s been in place since the financial crisis, which would involve winding down the €2.28 trillion quantitative-easing programme and raising interest rates.

The debate is being fuelled by robust incoming economic data, which if sustained could mean a decision on charting an exit strategy might be needed as soon as the next policy meeting on June 8. (Bloomberg)