MUNICH, Dec 19: Ifo, the influential German economic think-tank, lashed out on Monday at a decision earlier this month by the European Central Bank to raise its key interest rates by a quarter of a percentage point, saying it was a “risky” move that could backfire on the economy.

In particular, the timing of the ECB’s modest monetary tightening on December 1 was hard to justify, since the inflationary risks cited by the guardian of the euro as the reason for the move were already abating, Ifo said in its latest bi-annual report.

The question arises why interest rates were not raised at a much earlier point when inflation risks were higher and the economic outlook was better, Ifo wrote.

The inflation risks cited by the ECB have not yet materialised ... and long-term inflation expectations do not point to any such dangers either, the think-tank said.

Overall, the ECB appears to have exaggerated the inflationary dangers” arising from strong oil prices and over-abundant liquidity in the euro area economy.

If oil prices were to rise again, “then logic dictates that further rate increases must follow and those subsequent increases would bring with them corresponding economic effects”, the think-tank said.

Given the high level of uncertainty with regard to oil prices, the economy and money supply growth, the ECB should have waited further until the first signs emerged of a wage-price spiral or until the recovery gathered strength, Ifo argued.

These would have been two sensible and easily explainable reasons to raise rates, it said.

On December 1, the ECB raised its benchmark “refi” refinancing rate by 0.25 percentage points to 2.25 per cent in the first rate rise in the 12-country eurozone in five years. —AFP