By Jan Strupczewski
STOCKHOLM, April 28 (Reuters) - The International
Monetary Fund called on the European Central Bank on Friday to
keep raising interest rates until the middle of 2024 and on EU
finance ministers to tighten fiscal policy, in concerted action
to bring down high inflation.
The IMF's head of the European Department Alfred Kammer told
a news briefing ahead of a meeting of EU finance ministers and
central bank governors that inflation was the biggest worry.
"Our main policy recommendation is to defeat inflation and
that means we need to use the instrument of monetary policy. For
the ECB that means further tightening, tightening for longer, we
estimate until mid-2024, in order to bring inflation down to
target sometime in 2025," the IMF's head of the European
Department Alfred Kammer said.
"Inflation is a tax, in particular on the poor, and that
needs to be tackled," Kammer said.
Headline inflation in the 20 countries using the euro was
6.9% year-on-year in March, but core inflation, which excludes
large swings in energy and food prices, was even higher at 7.5%.
To bring inflation down to the ECB target of 2%, the central
bank has been aggressively raising interest rates, taking them
from zero in mid-2022 to 3.5% in March, but few in the markets
expect the policy tightening to continue beyond 2023.
Kammer said EU finance ministers also had to support the ECB
by reducing the fiscal stimulus to the economy that they rolled
out during the COVID-19 pandemic and then continued during the
cost-of-living crisis triggered by the Russian invasion of
Ukraine.
"Inflation cannot be just dealt with by the central bank,
you need fiscal policy to support it," Kammer said, adding an
expected substantial reduction in budget deficits in EU
countries did not materialise because government packages to
support citizens against high energy prices were extended.
"So ...we are recommending now, with energy prices coming
down, ...to phase out cost of living packages and, if they're
not being phased out, to make them more targeted," Kammer said.
"When you have a fiscal contribution, that means the (ECB)
tightening does not need to be so high, it means interest rates
can stay lower, that means less financial stress," he said.
The topic of a balance between monetary and fiscal policy
and inflation is on the agenda of talks of EU finance ministers
and central bank governors who are meeting in Stockholm on
Friday and Saturday.
(Reporting by Jan Strupczewski
Editing by Shri Navaratnam)
Messaging: jan.strupczewski.reuters.com@reuters.net))
