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ECB criticised by the Italy central bank.

 

Map of Italy
The head of Italy’s cent­ral bank has exposed a grow­ing rift at the European Cent­ral Bank by cri­ti­cising com­ments from fel­low euro­zone rate-set­ters about how much higher interest rates will need to rise to tame infla­tion. The ECB has sig­nalled it is likely to raise its deposit rate by half a per­cent­age point to 3 per cent at its meet­ing next week. Robert Holzmann, Aus­tria’s cent­ral bank gov­ernor, said this week he expec­ted the ECB to raise rates by half a per­cent­age point at each of its four meet­ings between now and July, which would take its deposit rate from 2.5 per cent to 4.5 per cent. That would be higher than the 4 per cent peak priced in by futures mar­kets.

« so as to bring infla­tion back to 2 per cent in the medium term without put­ting fin­an­cial sta­bil­ity at risk and min­im­ising the effects on the fra­gile eco­nomy», he said. Italy’s cent­ral bank gov­ernor is one of the more dovish mem­bers of the ECB coun­cil, many of whom fear the more hawk­ish rate-set­ters will use the per­sist­ently high infla­tion data to press for a com­mit­ment to fur­ther rate rises. Euro­zone infla­tion has fallen for four con­sec­ut­ive months since hit­ting a record 10.6 per cent in Octo­ber. Eco­nom­ists are divided on how fast infla­tion will fall and whether the euro­zone will this year enter a tech­nical reces­sion, defined as two con­sec­ut­ive quar­ters of con­tract­ing out­put.

«The evid­ence on the health of the euro­zone has been mixed so far,» said Fran­ziska Pal­mas, eco­nom­ist at research group Cap­ital Eco­nom­ics. «But we still think that depressed real incomes and rising interest rates will weigh heav­ily on con­sump­tion and invest­ment, push­ing the euro­zone into reces­sion». The euro­zone stag­nated in the fourth quarter of last year, accord­ing to offi­cial fig­ures pub­lished yes­ter­day that were revised down from Janu­ary’s flash estim­ate of 0.1 per cent growth after cuts to estim­ates in Ger­many and Ire­land.

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