ECB chief economist: the impact of monetary policy tightening on the banking industry will become stronger

ECB chief economist: the impact of monetary policy tightening on the banking industry will become stronger

European Central Bank chief economist Philip Lane said that the impact of the European Central Bank’s unprecedented interest rate hikes on banks will become more and more obvious.

The impact on banks is likely to intensify further in the coming months, Ryan said in a speech released on Wednesday. “Monetary transmission typically lags, meaning that the full economic impact of monetary policy tightening over the past year will not be fully felt until years ahead,” he said.

He mentioned the re-pricing of bank funds and the refinancing of fixed-rate loans, as well as the repayment of low-cost funds by banks to the ECB and the reduction of the agency’s stock of bonds.

How monetary policy is transmitted is a key consideration as officials consider further rate hikes. The European Central Bank is almost certain to raise rates by 25 basis points this month, taking the deposit rate to 3.75%, but what happens after that is still up in the air.

Of the 26 members of the management committee, Lane is dovish. He had previously declined to prejudge the September meeting, noting that a flurry of data would be released before then.

He also warned that financial stress in Europe or further afield could lead to “non-linear amplification”. The European Central Bank’s quarterly banking survey, due next week, will provide some insight into European credit conditions.