KBRA senior director Ken Egan said in a report that further ECB rate hikes could
push the eurozone into unnecessary stagflation. He warned that while credibility
matters and some tightening may be needed to anchor expectations, interest rates
are a blunt tool for supply shocks, especially with weak growth momentum. Egan
said recent inf rises have been driven more by external energy prices than by
domestic overheating and that policy overcorrection could allow an energy shock
to evolve into stagflation risk. The ECB is expected to raise rates by 25 bps
this week.
