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Several ECB monetary authorities for further rate hikes

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“Interest rates will still have to rise significantly,” said Finland’s central bank governor Olli Rehn on Wednesday in a webinar at the Peterson Institute for International Economics. His ECB council colleague, Austria’s central bank governor, Robert Holzmann, made a similar statement in Vienna. The rates would have to go up significantly further, it said in his presentation, said Holzmann in a presentation at a financial event.

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According to Finland’s central bank governor, the aim is to reach levels that slow down the economy enough to ensure a timely return to the medium-term inflation target of two percent. His council colleague Holzmann also justified his demand with this argument. However, the ECB is currently still a long way from its goal. In December, the inflation rate fell slightly to 9.2 percent due to the fact that energy prices had not risen quite as much. But that is still more than four times the central bank’s target.

“So we stay on course,” said Rehn. “This means significant rate hikes on the outstanding meetings this winter.” This depends on the economic data and the development of the outlook. Unlike other ECB currency watchdogs, Rehn does not simply brush aside criticism of the euro central bank for reacting too late to soaring inflation. “In hindsight, there may be some truth to that argument, at least from the perspective that it would have allowed us more monetary policy space to react if the economy went into recession,” he said. However, the Russian war of aggression against Ukraine initially triggered considerable uncertainty with regard to the economic consequences. That warranted some caution.

The ECB finally implemented the turnaround in interest rates in July and since then has raised the key rates in four steps by a total of 2.50 percentage points. The current deposit rate on the financial markets, which banks receive from the central bank for parking excess funds, is now 2.00 percent. ECB President Christine Lagarde has signaled further interest rate hikes of 0.50 percentage points for the next few meetings, as last seen in December. The next rate meeting will be on February 2nd.

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France’s head of the central bank, Francois Villeroy de Galhau, also expects further steps upwards. “In 2023, fresh rate hikes at a pragmatic pace will likely be needed in the coming months to bring inflation towards 2 percent,” he told the French Senate’s finance committee on Wednesday. What he specifically understands by a pragmatic pace, he did not explain. However, Villeroy made it clear that he believes interest rates have now reached a neutral level.

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Source: Nachrichten

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