European Central Bank Chief Economist Philip Lane has stated that the neutral interest rate could be as high as 2.5%, suggesting that further rate hikes might not yet be exerting a restrictive effect on the economy.
Speaking at an event hosted by Deutsche Bank on Thursday, Lane indicated that the decision to raise rates a week earlier may not have begun to curb economic growth.
"Our tightening last week started from a position of clear neutrality," Lane told the audience in Hertfordshire, north of London. "We have looked at a range of neutral rate models, and we think the upper bound of that range has moved up from 2.25% to 2.5%."
Lane's assessment contrasts with the ECB economists' analysis from early 2025, which placed the overall range between 1.75% and 2.25%.
Analysts and markets anticipate one more rate increase this year. However, there are also warnings that raising borrowing costs could inflict unnecessary economic pain, given that growth in the eurozone is already weak.
Lane described the outlook as "stable," while noting that the price shock stemming from disruptions to Middle Eastern energy supplies is not yet over, even if hostilities may have ceased.
"Even though oil prices are falling now, we think food prices will still rise, and goods and services prices will rise," he said. "Therefore, in terms of overall inflation dynamics, we do believe that inflation above target will persist for a relatively long period."
Deutsche Bank economist Mark Wall, who posed questions to him, asked Lane to compare the current situation with the energy crisis that followed the Russia-Ukraine conflict in 2022.
"I would call it a medium-sized shock, with a medium degree of persistence," Lane said. "It's medium-sized. The last one was large-scale."
He also asserted that the ECB can chart its own policy course without paying excessive attention to the actions of the US Federal Reserve.
"We will do what is necessary to achieve our objectives," he stated. "Of course, we note that there are spillover effects between the Fed and us, and we will take them into account. But I would say: the spillover effects go both ways."
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