DUBLIN (Reuters) – The European Central Bank still has a way to go to sustainably return inflation to its 2% target and its credibility – and ultimately its independence – is at stake, ECB Governing Council member Gabriel Makhlouf said on Thursday.
“There is a risk that trust and credibility in central banks will take another buffeting from the recent high inflation,” Makhlouf, governor of the Irish central bank, said in a lecture at the London School of Economics.
“And, while headline inflation has declined from its end-2022 highs, in part thanks to lower energy prices, I believe we still have a way to go to return inflation sustainably to our 2 per cent target.”
Locked in a fight against inflation, the ECB has embarked on its steepest ever run of interest rate hikes, which is set to continue next month and likely even after. Makhlouf earlier this week said the ECB could raise rates above 3.5% from the current 2.5% and likely will not cut them again this year.
In his speech, Makhlouf warned that central bank independence “is not just given, it has to be earned and maintained. This means delivering on our price stability mandate in the first instance, and also communicating clearly the rationale for our policies.”
“Trust and credibility, painstakingly built over time, can be destroyed quickly,” he said.
(Writing by Conor Humphries; Additional reporting by Balazs Koranyi; Editing by Hugh Lawson)
