Persistent inflation in the eurozone justifies further rate hikes, according to members of the decision-making body of the monetary authority. Two central bank governors, with differing views on how aggressive the European Central Bank should be, however, agree that more key interest rate hikes are yet to come.
The ECB has some increases to make, admits the head of the Bank of France
Although the European Central Bank (ECB) has done most of the work in terms of interest rate hikes, it still has “a little way to go,” Banque de France Governor Francois Villeroy de Galhau was quoted as saying by Reuters on Wednesday. It is not the first time that Villeroy prepares the public for what is to come.
After the fastest rate hike ever seen over the past year, the ECB is now considering whether to slow down the increases. The next decision is expected in early May, when policymakers determine how much higher than 3% the deposit rate needs to be to bring inflation down to the 2% target.
“We may still have a bit of a way to go to raise rates in our next few meetings, although I think it is premature to decide now what we will do in May,” Villeroy said in a speech in Washington. He made a similar statement in an interview at the end of March.
The head of the French central bank, who is a member of the ECB’s Governing Council, believes that most rate hikes have already taken place and argues that the biggest impact will come from earlier rate hikes. The adjustment can be stopped once inflation starts to turn, he insisted, explaining:
A change in the trajectory of core inflation, whether real or expected with sufficient certainty, should be a trigger to stabilize our rates.
Inflation outlook warrants 50 bp increase, says Austrian Central Bank Governor Hawkish
Since July 2022, the ECB has raised interest rates by 350 basis points (bp), including three consecutive 50bp hikes, but has yet to provide any clear indication on the likely outcome of its upcoming May 4 meeting. Reuters noted in a separate report.
Oesterreichische Nationalbank Governor Robert Holzmann, who also sits on the ECB’s 26-member Governing Council, told German media that the eurozone monetary authority must continue raising interest rates. In an interview with the Boersen Zeitung newspaper, he insisted:
The persistence of inflation currently calls for another 50 basis points.
“There is a great common understanding in the Governing Council of the ECB that we have not reached the end yet,” Holzmann revealed. “We must continue to act decisively and continue to raise key interest rates significantly even beyond May,” added Austria’s chief banker, who is considered a hawk among council members.
The expectations of further rate increases were recently highlighted by two other members of the Council: the governor of the Croatian National Bank, Boris Vujčić, and his colleague at the head of the Bank of Slovenia, Boštjan Vasle. Core inflation is clearly on an uptrend, Vasle said, while Vujčić acknowledged that more hikes may follow.
How much do you expect the ECB to raise interest rates in May? Share your predictions in the comments section below.
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