European Central Bank risks economic overkill with steep rate hikes

The European Central Bank (ECB) is so intent in breaking inflation, that it risks an economic overkill. Its chief economist Philip Lane said earlier this week that the plan is to continue with steep interest rate rises in the next few months. This follows a 75 basis-point increase to 2.25 per cent on its refinancing operations, and 2 per cent on the marginal lending facility at the beginning of November.

He said that economic activity in Europe is expected to slow substantially in the next few quarters to due to four factors.

“First, high inflation is dampening spending and production throughout the economy, and these headwinds are reinforced by gas supply disruptions. Second, the strong rebound in demand for services that came with the reopening of the economy after Covid, will lose steam,” he said.