HSBC CEO calls for higher rates to fight inflation

By Kevin Plumberg and Kennix Chim

HONG KONG (Reuters) - The chief executive of Europe's biggest lender on Tuesday called on central bankers to raise interest rates in order to combat inflation, and said more regulation may be needed in the wake of the credit crunch.

Michael Geoghegan, group chief executive at London-based HSBC Holdings, also said he expects it will take three years for the bank to turn around its HSBC Finance unit in the United States.

The consumer finance business, previously called Household International, was one of the earliest casualties of the subprime mortgage meltdown in the United States.

Geoghegan said central banks were not yet committed to taming inflation, and predicted U.S. interest rates would rise after the U.S. presidential election in November.

"Inflation is a long-term problem because there is no long-term will to solve it," Geoghegan said in a speech.

In a number of economies, central banks have either cut interest rates or kept them low to support growth at a time when lending between banks has stalled and housing markets around the world have plummeted.

However, energy and food prices have surged, feeding inflation and crimping consumer spending. For example, since a flood of homeowners defaulting on their mortgages snowballed into a credit crisis last summer, U.S. consumer inflation has risen from an annual rate of 2 percent to 3.9 percent in April.

Geoghegan also said the industry's investment banking model would need to be changed over time to avoid a repeat of the past year's credit crunch.