“Interest rates are likely to be at that higher level for a while until we actually see inflation really stabilising around and inside our target range,” Amir Yaron said in an interview on Bloomberg Television’s “Balance of Power.”
Yaron said the bank’s targeting a real interest rate of “somewhere around zero, or slightly above it”, indicating it still has a long way to go, with the current rate at more than negative 3% when adjusted for inflation. “That process of raising interest rates, it’s clear that it creates pain for many, but it’s pain today to avoid a much greater pain in the future,” Yaron said.
By “front-loading” its rate increase now, the bank was acting to lower inflation, which acted as a tax and dragged down the economy, he said.
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