'ECB should keep raising rates as long as needed'

The European Central Bank must maintain restrictive monetary policy to quell inflation, the OECD said, sounding a note of caution for policymakers considering a pause in a record series of interest rate increases.

The Paris-based organisation warned in its survey of the European economy that risks to inflation remain "skewed to the upside" and measures of core price increases appear "sticky." It also said the need to anchor anticipations with tough policy may outweigh concerns that higher borrowing costs will hurt economic output.

"The ECB should stay determined to bring inflation back to target in a timely manner to prevent current high inflation from becoming entrenched in expectations," the OECD said. "The ECB needs to keep raising interest rates for as long as needed to put inflation back on a sustainable path toward the 2% target."


The central bank's September 14 meeting is one of the most uncertain yet after President Christine Lagarde flagged it as a data-dependent choice between hike or hold. The latest readings show underlying inflation a metric officials have been watching keenly slowed in August, though the headline number held steady.

ECB officials have been cautious about giving any indication which way they are leaning, stressing instead that options remain open for coming rate decisions as they still await an update of official forecasts. Still, the Dutch representative on the Governing Council, Klaas Knot, said earlier Wednesday that markets risk underplaying the chances of a hike.

A week-long quiet period begins Thursday, during which ECB officials are not supposed to publicly express views.

The OECD also called for governments to support the ECB's efforts to combat inflation by ensuring fiscal policy does not over-stimulate the economy. It said that would require better targeting of energy support measures and adjusting spending from the European Union's Covid recovery fund to ensure investment doesn't drive inflation.