“ECB Officials Consider Continued Interest Rate Hikes to Cool Inflation”

Officials at the European Central Bank (ECB) are beginning to realize that interest rate hikes may need to continue into September to further cool inflation, Bloomberg reported, citing sources familiar with the discussions.

The ECB’s approach, which is dependent on economic data, allows for rapid change in the views of members of the regulator’s Governing Council. However, some officials speculate that two additional interest rate hikes of 25 basis points may not be enough to cool the growth in consumer prices, according to sources who wished to remain anonymous, added Investor.bg.

That means another rate hike is possible when ECB officials meet again on Sept. 14 after the traditional summer break, taking the deposit rate to 4 percent from the current 3.25 percent.

By then, there will be two more batches of forecasts, four new indices measuring inflation and another quarterly survey on bank lending.

With the next ECB meeting more than a month away, no decisions have yet been made on borrowing costs. There is also a clear lack of confidence among officials that their cycle of monetary policy tightening is coming to an end.

Markets currently expect interest rate hikes to end at 3.75% at the ECB’s July meeting. Representatives of Danske Bank, however, forecast the interest rate on deposits to reach 4% with another increase in September.

The most outspoken public signal from an ECB board member on interest rates came from Latvia’s central bank chief Martin Kazaks, who said last week that investors should not take so confidently that monetary policy tightening will stop in July.

“I don’t think it’s all that clear,” Kazaks said, adding: “We still have a lot of work to do, and further rate hikes will be needed to tame inflation.”

His views are shared by the central bank chiefs of the rest of the Baltic states, who have turned to more aggressive policies as they face inflation rates that are more than twice the eurozone average.

Slovakia’s Peter Casimir, another ECB hawk, said the eurozone regulator would have to keep raising rates for longer than he expected. On the other hand, Greece’s central bank governor Yiannis Stournaras refused to commit to an end date for interest rate hikes, pointing out that the spikes in borrowing costs would almost certainly end this year.

Although ECB Governor Christine Lagarde declined to say how many more rate hikes there would be, signaling that at least two more such decisions would be needed, she warned that the outlook for inflation continued to point to too fast a rise in consumer prices for an extended period of time, highlighting significant “upside risks”.

The ECB does not forecast inflation to cool to its 2% target until the second half of 2025, with chief economist Philip Lane saying earlier this week that there was still “strong upward momentum” in prices.

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