European Central Bank Governing Council member Jens Weidmann said the ECB should raise interest rates if needed to curb inflation.
The ECB’s forward guidance to keep rates at current levels or lower for an extended period of time “shouldn’t exclude that the benchmark rates will be raised in the future if inflation pressure becomes apparent,” Weidmann said in a speech in Munich today. “This is no historic change.”
ECB President Mario Draghi last week announced forward guidance for the first time in the Frankfurt-based central bank’s history, saying that borrowing costs will stay at their present level or lower for a while. More than three-quarters of respondents in a Bloomberg survey of 50 economists said that this means the ECB won’t raise rates for at least 12 months.
Draghi’s assessment “is not a shift in strategy,” Weidmann said. “It’s an attempt to explain our monetary stance in an easier, more comprehensible way so that it is understood by preferably all market participants.”
The ECB left its benchmark rate at a record low of 0.5 percent and its deposit rate at zero last week.