Belgium, (Brussels Morning Newspaper) The European Central Bank (ECB) expects to rein in inflation in 2025, according to one source.
The source noted that the ECB expects inflation to remain above the target 2% in the next three years, which is longer than markets expect, according to Reuters reporting on Wednesday.
Later this week, the ECB is to continue upping interest rates to bring rising inflation under control and release new economic projections to help investors predict coming rate hikes and adapt.
Eurozone inflation has exceeded 10% in October, largely driven by record spending in the coronavirus crisis, with ECB’s plans showing that it is still not close to getting inflation under control.
According to the source who wished to stay anonymous because the EU’s central bank still has not released its forecasts, ECB’s new projections place inflation just above the 2-percent target in 2025.
ECB’s new forecasts for 2024 and 2025 are higher compared to market expectations and will serve as the guidelines for the bank’s policies until March next year, when the ECB is to release fresh estimates.
Inaccurate forecasts
While the bank’s forecasts are rarely accurate, the ECB bases its decisions on them to steer trends in the medium term, pointing out that inflation and its effects take months to spill across the economy.
Some members of the ECB Governing Council have criticised the bank’s forecasts in recent months and called on the eurozone central bank to focus more on current readings rather than expected inflation levels.
According to economists polled by Reuters, inflation will stand at 6% next year, followed by 2.3% in 2024 and 1.9% in 2025. They predicted that the ECB will up the deposit rate 50 basis points this week, to 2%, further to 2.5% by March next year and additional 25 basis points by July.
Economists also expect the ECB to drive up interest rates by mopping up cash from the financial system, predicting that the eurozone central bank will let some 175 billion euro worth of debt expire in 2023.
Some ECB Governing Council members have called for the operation to start in Q1 next year, while others want to delay the move.
