FRANKFURT: The European Central Bank (ECB) will likely raise interest rates to preserve credibility in the face of a war-driven rise in fuel costs but there is little to suggest yet that high inflation is taking root in the eurozone, ECB policymaker Olli Rehn says.
The ECB is all but certain to increase borrowing costs at its meeting on June 11 after disruptions to the Strait of Hormuz caused a spike in oil prices and pushed inflation in the eurozone above the bank’s 2% target.
Rehn, Finland’s central bank governor, echoed several of his colleagues in saying the eurozone was sliding towards the ECB’s “adverse scenario” of slower growth and higher inflation, which may force it to raise rates “for the sake of credibility”.
But he said that the price of gas had not risen as much, wage growth was still moderating and longer-term inflation expectations were still anchored at 2% despite a rise at a shorter horizon.
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