The ECB may keep raising rates, but they're unlikely to be be as large as last week's 75-basis-point rate hike, said Governing Council member Edward Scicluna.
, taking its benchmark deposit rate to 0.75%. The bank also revised up its inflation expectations for 2022 to an average of 8.1%.
Scicluna said he does not think 75 basis points is going to be the norm in the short term. That's because pressures on the main source of Europe's inflation — energy and food — will ease, he added. "We believe that the supply side, or source of this inflation, will abate, perhaps because of things happening in the U.S. and globally, and therefore prices of commodities and energy would subside," he said.Oxford Economics: The risk of "hard rationing" of gas in Europe this winter is less likelyScicluna cautioned that central banks are limited in what it can do to fight supply-side inflation — the kind that Europe is facing.
"The source of [our] inflation is not demand as in the U.S., it's supply… and therefore, the instruments of any central bank are very limited."Raising interest rates to control inflation spurred by demand is not a solution, as higher prices are in this case driven by supply chain shocks,He added that supply is "very difficult" to manage, across various industries and businesses, who face many challenges "turning the taps back on.
"We're sort of advising that the help the governments are now being pushed into giving at least has to be targeted for the vulnerable households," he said, adding that they "can't afford to cushion everybody all the time."to help with skyrocketing energy costs. It was announced that a typical household will pay no more than £2,500 per year for each of the next two years.
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