The ECB will raise interest rates several times, says Klaas Knot

The ECB raised the official interest rate four times in 2022, to a total of 2.5%. This is due to inflation, which in the Netherlands in November 9.9 percent wash, contain.

But more interest rate hikes are on the way, warns Klaas Knot, who, in addition to being director of the ECB, is also president of De Nederlandsche Bank (DNB, the Dutch central bank). He says it in one interview in the business newspaper Financial Times.

Savings and mortgage interest

The official interest rate is the interest that banks have to pay the ECB when they borrow money from it, and it affects many other interest rates.

For example, the increase in the official interest rate in recent months has already guaranteed you higher interest on your loan savings account. But the mortgage interest that homebuyers have to pay has also increased.

House prices

Savers will be happy with the higher interest, but for homebuyers it’s a little different.

Last week, DNB warned that due to rising mortgage interest rates in 2023, the house prices it will drop by 3.1 percent and another 3.3 percent in 2024.

“Peak in the Summer”

Between now and mid-2023, the ECB will meet five times to set the official interest rate.

Knot thinks interest rates will rise by half a percentage point over the next few months and will only peak in the summer.

The idea is that by raising interest rates, the ECB will make borrowing more expensive, so businesses and consumers will borrow less. This slows economic growth and should therefore tame inflation.

Fear of inflation

But critics fear the ECB will slow the economy too much. Node disagrees. “The risk of doing too little is even greater than that of doing too much.”

Knot fears inflation will stay high for longer. High inflation is bad for the economy because it creates uncertainty. On the other hand, falling prices are also not good. The ECB therefore aims for an inflation rate of 2 percentthat would be right.

recession

Knot thinks a recession due to ECB interest rate hikes will be short and limited.

According to him, data from Germany, the largest economy in the euro zone, seem to indicate that “the worst may already be over”.

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