Rapid wage growth in the euro zone could keep inflation elevated longer and the European Central Bank should hold interest rates at or near record highs during next year to extinguish price pressures, the International Monetary Fund said today.
The ECB broke a streak of ten rate hikes in a row last month, fuelling market expectations that its next move will be a cut, possibly as soon as April, with a total of 90 basis points of reductions priced in by the close of next year.
Kammer warned the ECB against cutting rates too soon because that would require even more costly policy tightening later on. While the IMF sees price growth back at target in 2025, an exceptionally tight labour market could push this date back to 2026, it warned. "Risks remain skewed toward more persistent inflation," the IMF said in a report."Under adverse assumptions, this could delay reaching inflation targets to 2026."
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