The European Central Bank (ECB) has signaled a pause in its rate hikes for October, following ten consecutive increases. This decision has sparked a debate among policymakers regarding the future of the ECB's rate hikes. Tuomas Valimaki, representing the Bank of Finland on the Governing Council, stated that the current key policy rates, if maintained for a sufficient period, could significantly contribute to bringing inflation back to their target.
Valimaki, who is standing in for Governor Olli Rehn during his campaign for Finland's presidency, added that this does not necessarily imply an end to interest rate increases. He emphasized that considering the risks associated with the inflation path and persistent inflation staying above the ECB's 2% target, any additional delay in achieving the target would be unacceptable.
In contrast to Valimaki's stance, other Governing Council members like Vice President Luis de Guindos believe that the current 4% rate will help attain the euro-area inflation target of 2%. After witnessing ten successive rate hikes, markets and economists are under the impression that the ECB has reached its peak rates.
However, Valimaki stressed that future decisions on rates would depend on data. He said, "We will assess the inflation outlook also in the light of the dynamics of underlying inflation and the strength of monetary policy transmission."
Inflation fell to 4.3% in September from 5.2% a month earlier, a larger-than-anticipated drop that should boost confidence in price growth control. Despite this, price growth is expected to level off next year and hold steady at around 3% for much of 2024 due to governments unwinding subsidies. The key question remains whether disinflation can resume into 2025 and return to 2% by year-end.
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