Post: ECB may need to raise rates for longer than anticipated: Kazimir

The European Central Bank may need to raise interest rates for longer than currently anticipated, and September could be the earliest moment when policymakers can judge whether past rate hikes have been effective, ECB policymaker Peter Kazimir said on Tuesday.

The ECB has lifted rates at each of its past seven meetings to fight a historic surge in consumer prices and policymakers have signalled further hikes to come as inflation pressures continue to build.

But the bank slowed the pace of hikes to 25 basis points last week, the smallest increment since tightening started last July, arguing that past measures are still working their way through the economy and overall inflation was past its peak.

“Based on today’s data, we will have to keep raising interest rates for longer than anticipated,” Kazimir, Slovakia’s central bank chief, said in a blog post. “So, slowing down the pace to 25 bps is a step that will allow us to go gradually higher for longer, should that be necessary and warranted by incoming data.”

Markets currently see another 40 basis points of increases in the ECB’s 3.25% deposit rate, indicating that investors fully expect another move but are split on subsequent steps, and even anticipate rate cuts in early 2024.

That appears to be in contrast with the views of some policymakers who speak of rate hikes in the plural and argue that once rates hit their peak, they should stay there for some time.

The ECB sees inflation falling under 3% by the final quarter of this year, then taking almost two more years to ease back to its 2% target.

Part of the worry is that high underlying price pressures and relatively quick nominal wage growth will keep upward pressure on prices for some time to come.

“The development of core inflation, the continued buildup of wage pressures, and high-profit margins call for vigilance and reconfirm the need to continue on our path,” Kazimir said.

“Our September forecast will be the earliest date to answer how effective our measures are and whether inflation is moving towards the target.”

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