ECB discusses further actions after February rate hike
2023.01.23 14:27
ECB discusses further actions after February rate hike
By Ray Johnson
Budrigannews.com – Policymakers at the European Central Bank presented divergent viewpoints on future interest rate hikes on Monday, indicating that moves beyond the 0.5 percentage point increase scheduled for next week remain contentious.
Pricing for March has been fluctuating between 25 and 50 basis point increases as policymakers speak, despite the ECB’s promise in December to combat sky-high inflation of a steady pace of 50 basis point increases over multiple meetings.
In a flurry of comments just days before the bank’s quiet period begins in advance of the meeting on February 2, their Italian and Greek counterparts made the case for a more cautious stance. However, the governors of the Dutch and Slovak central banks explicitly supported a larger move in March.
Even though some doubts remained, ECB President Christine Lagarde aimed to put this debate to rest last week when she advised investors to “revise their positions” as her guidance remained unchanged and market pricing increased.
Peter Kazimir, head of the Slovak central bank and a vocal hawk, stated that policy tightening could be completed by the summer and that back-to-back moves of 50 basis points are still required.
“It’s good news if inflation falls in two consecutive months. However, Kazimir stated in a Monday statement, “It is not a reason to slow the tempo of raising interest rates.” We must, in my opinion, implement two additional 50 basis point raises.”
His Dutch counterpart, Klaas Knot, made a similar clear statement over the weekend, promising additional hikes after March.
Knot stated, “Expect us to raise rates by 0.5 percent in February and March, expect us to not be finished by then, and that additional steps will follow in May and June.”
Inflation, which is currently around 9%, is expected to rise once more in January before gradually falling in the years to come, which could still result in price growth above the ECB’s target until 2025.
Reuters polled economists and found that they expect the ECB to raise interest rates by 50 basis points at each of its next two meetings.
However, policy doves pushed back on Monday after remaining largely silent in recent months as inflation reached double digits in autumn.
According to Yannis Stournaras, governor of the Greek central bank, the ECB would benefit from taking a more cautious approach because market volatility, the war in Ukraine, and a potential recession all increase the level of uncertainty regarding the inflation outlook.
Stournaras stated to Greek newspaper Kathimerini, “In my opinion, the adjustment of interest rates needs to be more gradual, taking into account the slowdown in growth of the euro area economy.”
Ignazio Visco of Italy agreed that there needs to be more rate hikes, but he also said that they need to happen gradually because longer-term inflation expectations are still close to the ECB’s 2% target and there is no sign of a wage-price spiral.
In a speech, Visco stated, “I am not convinced that it is better today to risk tightening too much rather than too little.”
