ECB chief economist says rate rise 'measured adjustment'

The Chief Economist of the European Central Bank has described yesterday's decision to hike rates by quarter of a percentage point as a "measured adjustment" in the face of "significant inflation issue".

The bank increased interest rates from 2.25% to 2.5% as inflation across the eurozone is at 3.3%, well above the bank's target of 2%.

Speaking at the Dublin Economic Workshop which held its annual conference in Wexford, Philip Lane urged governments to keep supports for families struggling with the effects of inflation temporary.

He said: "Governments absolutely do need to help those who are struggling. What we say is 'temporary, tailored and targeted' focus on those who need the help.

"Focus on helping them to pay their bills. But generalised support for a large part of the population ... that adds to demand in the economy, it does not help the inflation issue."

Mr Lane said while energy prices were at the "centre of the decision" to increase interest rates yesterday, the big issue was high prices compared to last February before the war in Iran broke out as opposed to the 'to and fro' of energy prices.

At the conference Minister for Public Expenditure and Reform Jack Chambers has said the tax package in the October budget will be "moderate overall".

He was commenting following remarks by the Tánaiste and Minister for Finance Simon Harris who said the Government was committed to increase the threshold at which people pay the higher rate of tax.

Asked about the surge in the price of oil prices ahead of the budget he said the social protection system will be used to target those on lower incomes affected by higher fuel prices.

Minister Chambers wanted to see smaller levels of increases in day-to-day spending by Government departments compared to previous years.

He said in the "next number of days" the Government would move to take action to "centralise controls" from some regions within the Health Service Executive.

He added: "They have had very poor budgetary management, very poor financial management and have had complete lack of control in oversight the budget they have been allocated."

His comments came as the Department of Health's overspend stands at €760m so far this year.

He added that he and the Minister for Health Jennifer Carroll MacNeill were "at one" in bringing tighter controls on spending.

He said there was a significant campaign to raise the €40,000 tax free threshold for nieces and nephews who inherit money.

But he said equalising that with the €400,000 threshold for sons and daughters "would cost hundreds of millions of euro."