Belgium, (Brussels Morning Newspaper) European Central Bank (ECB) Governing Council member Madis Müller criticised the bank’s policy as inappropriate on Wednesday.
Müller, the Governor of the Bank of Estonia, noted that the ECB could announce change of policy at the meeting in June, according to Reuters reporting.
He pointed out that inflation in the eurozone has reached 7.5%, the highest level on record and almost four times higher than ECB’s target of 2%, with several Governing Council members calling on the bank to react.
Müller reminded that the ECB announced it would cut its bond purchase programmes in July, but stressed that the bank could make the move sooner.
Little time to waste
Commenting on the coming ECB meeting, he pointed out “we could even discuss if we should end purchases a few weeks earlier” and added “the real issue is interest rate increases and we shouldn’t have much of a delay there either.”
Müller reiterated that the current ECB policy is inappropriate “given where inflation is and given inflation expectations.”
The ECB has not upped interest rates in more than a decade and previously announced plans to end bond purchase programmes before upping rates.
Müller pointed out that the ECB could announce interest rate hikes in June and added that, in his opinion, the focus of the meeting in July should be on interest rates.
He noted that the first rate hikes could take place in the second half of the year, followed by additional hikes that would bring the deposit rate back above zero.
“Even if we go by 25 basis point increments, we may get to a positive rate by the end of the year,” he predicted and pointed out “for the time being, 25 basis points would be an appropriate increment.”
Markets currently expect rate hikes of roughly 90 basis points by the end of the year, which would take three to four 25-point moves.
Commenting on the growing spread in yields between eurozone members, Müller pointed out that he is not worried as it is a result of expected market responses.
He added that the ECB should limit any “unwarranted” growth of spreads, but stressed that the bank should not rush with any new tools to address this.