A small European Central Bank (ECB) interest-rate increase could temper inflation without causing economic damage, Governing Council member Yannis Stournaras told Liberal.gr.
"A significant but temporary excess over the inflation target would mean a measured adjustment of monetary policy in a more restrictive direction in the near future, in order to limit the intensity of second-round effects, without disproportionately affecting economic activity,” the Greek central bank was cited as saying.
Markets and economists are betting on a quarter-point hike at the ECB’s June meeting, with several policymakers indicating they would back such a step. Still, some have been less direct, instead holding out for more incoming economic data.
"The duration and intensity of the energy shock, as well as the mechanisms through which it is transmitted to the real economy, will also determine our response,” Stournaras said. "We will continue to closely assess all available data and remain ready to set policy rates at levels consistent with maintaining price stability over the medium term.”
The typically dovish central banker highlighted that there "currently is no strong evidence” of second-round effects, but warned of heightened uncertainty.
"Damage to energy infrastructure in the Gulf could prolong inflationary pressures over the medium term,” he said. "Longer delivery times and rising input costs suggest that supply chains are coming under increasing pressure.”