ECB to continue rate hikes even as economy suffers

FRANKFURT: The European Central Bank will continue to raise borrowing costs even as the euro zone economy suffers because letting inflation stay high would be even more painful, two top ECB policymakers said on Tuesday.

The ECB has been raising interest rates at record pace and steering investors towards more hikes ahead to bring double-digit inflation in the euro zone back to its 2 per cent target. ECB vice-president Luis de Guindos and Bundesbank president Joachim Nagel said this involved costs in terms of economic growth, Reuters reported.

"I will ... do my utmost to ensure that we, the Governing Council of the ECB, do not let up too early and that we continue to push ahead with monetary policy normalization - even if our measures dampen economic development," Nagel told a German banking conference, adding large rate hikes were necessary.

"Because in a situation where monetary policy gets behind the curve, the overall economic costs would be significantly higher," Nagel said. De Guindos added the ECB's policy would "reduce aggregate demand, both consumption and investment, but it's the only possible way forward that we have because doing nothing would be much worse".

The euro zone's economy is widely expected to shrink this winter due to a combination of higher energy costs, weaker global demand and higher borrowing costs.