LONDON: The European Central Bank (ECB) will likely need to raise interest rates further to tame persistent inflation, two leading hawks on the bank’s policymaking Governing Council say, while playing down the risk of repeat of the 2008 financial crisis.
The comments from the central bank chiefs of Austria and Belgium backed up remarks a day earlier from two fellow hawks – their Slovakian and Lithuanian peers – and pressed the case for higher rates to tame inflation running at 8.5% in the eurozone.
The ECB raised interest rates as promised by 50 basis points last Thursday, sticking with its fight against inflation and facing down calls by some investors to hold back on policy tightening until turmoil in the banking sector eases.
Robert Holzmann of Austria and Pierre Wunsch of Belgium said further action would likely be needed.
“Inflation is proving much tougher than thought,” Holzmann told Austria’s ORF 1 radio. “I do expect some more interest rate hikes.” He added that the extent of further increases would be data-dependent.
The ECB has hiked rates by 350 basis points since last July, lifting its benchmark refinancing rate to 3.5% last Thursday.
“We know that we have to do more of this,” Wunsch told Belgian paper L’Echo. “At what measure? That’s not clear. It will be meeting by meeting.”
Asked how high the benchmark rate could go, Holzmann replied: “Some of us are hoping it will stay below 4%. I’m afraid it’s probably going to go above 4%.” Wunsch said the ECB had a “long way to go” if its baseline inflation forecast materialised.
The ECB last Thursday projected inflation would remain above its 2% target through 2025, based on forecasts it said had been formulated before a huge selloff in bank shares this week.
The ECB also acknowledged that the outlook had become more uncertain after the collapse of two banks in the United States and more problems at Credit Suisse Group. —Reuters
