According to comments made by a member of the ECB’s governing board to CNBC on Thursday, the institution is not going to limit its next round of rate hikes to a single increase of 50 basis points.
About the forthcoming actions of the European Central Bank (ECB), Klaas Knot, who is now serving as the governor of the Dutch central bank, said that “It will not end at a single 50 basis point rise, that’s for sure.”
The European Central Bank implemented a total of four separate rate hikes during 2022, ultimately bringing its deposit rate up to 2%. To combat the sky-high inflation, the central bank said in December that it planned to raise interest rates even more in 2023.
Even while it is still significantly over the ECB’s objective of 2%, recent statistics have shown that headline inflation has been trending downward.
According to the preliminary data, inflation in the euro zone for December came in at 9.2 percent. This was the second monthly decline in price hikes that had occurred consecutively throughout the eurozone. Knot, on the other hand, does not consider all of the most recent statistics to be “encouraging.”
During his speech at the World Economic Forum in Davos, he said that “what we have seen so far is data that is not encouraging from our end.”
“We have seen one more inflation report where there were no indications of abating of the underlying inflationary pressures,” she said. “We have seen one more reading.” The core inflation rate in the euro area has not yet turned the corner, and as a result, the developments in the market that I have seen in the past, say, two weeks or so, are not entirely welcome from my point of view. However, we have no choice but to do what we have to do, and we will have to do it. “I don’t believe they are truly consistent with a quick return of inflation toward 2%,” Knot said. “It’s just not going to happen.”
The European Central Bank is widely anticipated by market participants to increase interest rates at its next meeting in February. The more important issue is whether or not the Federal Reserve is too aggressive with its policy tightening and whether or not this stunts economic development. Despite this, Know has made it quite apparent that there will be at least two further rate increases.
“We will cover the majority of the land that we have to cover at a consistent pace of repeated 50 basis point rises,” he added. “This is the majority of the ground that we have to cover.”
It is pretty evident that our president has used the plural in her wording, and I will use the plural here as well. I cannot tell in advance where that type of pace of 50 basis point rises is going to finish, but I am using the plural here. Therefore, it will not end with a single increase of 50 basis points, that much is certain.