“In the current conditions of high uncertainty, we will maintain the optional nature, the gradual nature and the flexibility in the conduct of monetary policy,” ECB President Christine Lagarde said in a statement highlighting the growing risks for the economy. economic growth due to war in Ukraine, pandemic restrictions in Asia, and the associated rise in energy costs driving up prices.
“We’ll deal with interest rates when we get there,” she added.
The ECB’s stance remains largely unchanged since its last meeting in March, held just two weeks after Russia invaded its neighbour. The central bank expects inflation to remain high for the rest of this year before falling sharply in 2023 and 2024.
“History has shown us how easy it is to get this tricky dance wrong,” Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, told CNN Business. “The ECB’s decision is in direct contrast to the United States, where there have been accusations of potential increases being too thick and too fast.”
The rate increases in Europe are likely to arrive, but will be “more delayed” than expected, she added.
The ECB’s caution has shaken many in Germany.
“The ECB has massively contributed to this trap it is now caught in as we head towards the risks of a stagflationary environment,” he told the publication.
Although now is not the right time to raise rates to high levels, Issing said the ECB’s inflation forecast model was outdated and had not understood how the pandemic and the war in Ukraine had brought about fundamental changes in the global economy.
Germany has a deep-rooted fear of inflation, given the role the hyperinflation of the 1920s is widely believed to have played in the rise of the Nazi Party.