The Governor of the Bank of Finland and member of the Governing Council of the European Central Bank (ECB), Olli Rehn, has voiced his support for continuing to raise interest rates and does not expect the institution to reach the terminal level of the reference rate until the summer. This information is especially important for those who plan buy property in Spain and take out a mortgage in the near future.
"It is hard to imagine that we will stop raising interest rates as long as the underlying inflation rate continues to rise and is so high," Rehn told the German newspaper Boersen-Zeitung. He added that he expects the peak of the hiking cycle to be reached "during the summer".
According to the Finnish central banker and former European Commissioner, the ECB must raise rates "continuously" and "pre-emptively" beyond March to keep inflation expectations under control and thus avoid the need for "shock therapy" with extreme interest rate hikes in the future. Currently, the price of money is at 3% and a further 50 basis point increase is expected next month, which would raise rates to 3.5%, the highest since October 2008.
"We should not ease too soon," Rehn says, referring to the situation in the United States in the late 1970s and early 1980s, when the Federal Reserve System was caught off guard by a second wave of inflation and had to react by raising rates sharply, leading to high unemployment.
In this regard, he points out the importance of avoiding a wage-price spiral, which is why attention is placed on the current rounds of collective bargaining, as excessive wage increases could force the ECB to take harsher measures to control inflation.
"It is crucial that wages only rise so much so the economy remains competitive and a wage-price spiral is avoided. Otherwise, we would have to take even stronger countermeasures if necessary," he added.
Rehn's position contrasts with the messages of moderation that some ECB members and the monetary authority's chief economist have been calling for in recent days, who have warned of the risks associated with an excessively restrictive policy. For example, Italian economist Fabio Panetta recommends taking small steps to not harm the economy and employment, while the body's chief economist, Philip Lane, sees the need to regularly review the calibration of measures. His counterpart at the Bank of England also believes that hikes should be moderated.
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