The chief economist of the European Central Bank, Philip Lane, has said surveys of market analysts carried out by the ECB indicate that expectations are that interest rates "will rise further in the near term".
Speaking at the Enterprise Ireland Summit in the RDS today, Philip Lane said that rates "will remain elevated levels for an extended period".
He said the survey also indicated that once inflation has stabilised at the ECB's 2% target, it is expected that the rate will settle "in the neighbourhood" of 2% rather than returning to historically low interest rates of the past decade.
Professor Lane also said today that the European Central Bank is raising interest rates to suppress economic growth and, with it, inflation.
"By bringing interest rates to a sufficiently restrictive level and fostering a period of below-trend growth through the dampening of demand, we will counteract above-target medium-term inflation pressures and also ensure that the prolonged phase of above-target inflation does not become embedded," he said.
Philip Lane said today that growth in services across the euro zone is still accelerating but the steady improvement in business and consumer sentiment may have stalled.
He said that recent developments were "mixed".
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The ECB has raised interest rates at its past six meetings and said that unless the economy starts developing differently than it predicted last month, more increases will be needed to curb inflation.
"The expansion of services business activity is accelerating, supported by a continuation of strong reopening effects and rising incomes, whereas manufacturing output stagnated in the first quarter of the year," Philip Lane said.
"Incoming survey indicators suggest that the steady improvement in business and consumer sentiment, which remains at low levels, may have stalled," he added.
Markets are now betting on a 25-basis-point interest rate hike at the ECB's policy meeting on May 4 but investors see a one-in-three chance of a 50-basis-point increase before rates rise further in subsequent meetings.
The peak in rates is seen just below 4% and Professor Lane said that once the benchmark rate hits a plateau, it will stay there for an extended period before cuts are possible.
Additional reporting from Reuters
