Slovak central bank chief Peter Kazimir says the European Central Bank will have to raise interest rates again to stop high inflation from becoming entrenched. He argues markets may be underestimating how much tightening is needed. The ECB held rates last week, but several policymakers have since pushed for more.
Peter Kazimir, head of the Slovak central bank, said the ECB will have to raise rates again to keep high inflation from getting entrenched. He added that markets may be underestimating what is needed to quell price pressures.
Policymakers push for more after the pause
The ECB kept rates unchanged last week. Since then, a number of policymakers have argued for adding to its two rate hikes sooner rather than later, citing sky-high energy costs that they say will eventually set off second-round effects.
Kazimir, a hawkish voice on the 27-member Governing Council, said on Monday that the question is increasingly not whether further action is needed but how much more. In his view, the issue is not one meeting or one move but the path needed to bring inflation back to target and keep it there.
Kazimir questions the ECB's reasons for holding
Financial markets now see between two and three rate hikes from the ECB over the next year before a slow retreat. Market-based inflation indicators suggest price growth will be well above the ECB's 2% target for years to come.
The ECB held on the premise that second-round inflation effects have yet to take hold, wage growth is muted and economic growth is likely to take a hit from surging longer-term borrowing costs. Kazimir said these were not necessarily as reassuring as some think. He said cost pressures could build before businesses pass them on and that expectations could shift before wider price pressures appeared in the data.
He also said a slowdown in growth does not necessarily weaken inflation, because cost pressures have already been building for months. Growth is relatively solid because government budgets are buffering the economy, he added, and a lack of fiscal prudence can also keep price pressures up.
According to Reuters, Kazimir said: "Last week’s pause was not a finish line."
Source: Investing.com (Reuters)
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