ECB’s hawkish Governing Council: Don’t expect an interest rate cut in the first half of next year as there is still the possibility of further interest rate increases
2023-09-17 17:49:46
Financial Associated Press, September 17 (Editor Xia Junxiong) Martins Kazaks, a member of the European Central Bank’s Governing Council, said that betting on the European Central Bank to cut interest rates in the first half of next year would be a mistake.
The European Central Bank decided to raise interest rates by 25 basis points on Thursday. The three key interest rates in the euro zone, the main refinancing rate, the deposit mechanism rate and the marginal lending rate, will be raised to 4.5%, 4% and 4.75% respectively.
Kazaks is the governor of the Central Bank of Latvia and one of the hawkish officials on the Governing Council of the European Central Bank. He said in an interview: “The market should not expect us to cut interest rates prematurely. When we see (inflation levels) continue to and significantly start to fall below our target, we will start to cut interest rates. What I can say clearly is, Expectations of a rate cut in the spring or early summer (next year) are inconsistent with our current macro picture, in my view.”
Kazaks noted that wage growth in the euro zone has not peaked and it is unclear how quickly underlying inflation will fall back.
After the European Central Bank announced an interest rate hike this week, the market generally believed that this was the central bank’s last rate increase in this cycle, and some economists expected the central bank to cut interest rates as early as June next year.
Forecasts released by the European Central Bank show that although price pressures are expected to slow significantly in the coming months, the euro zone inflation rate will still take two years to reach 2%; euro zone economic growth will return to 0.4% quarterly in 2024 growth rate.
Kazaks said the outlook was one of a soft landing, with unemployment rising only slightly, and that the European Central Bank’s recent interest rate hikes were expected to solidify that.
Reserve the possibility of further interest rate hikes
Kazaks reserved the possibility of further rate hikes, saying: “While I’m happy with the current interest rates, we will take the right decisions if necessary. I don’t think we can say that rates have peaked yet.”
Inflation levels in the euro area have improved significantly, but still worry policymakers. Data previously released by Eurostat showed that the Eurozone’s adjusted CPI increased by 5.3% year-on-year in August, down by half from last year’s peak level of 10.6%. The core adjusted CPI, excluding volatile factors such as food and energy, increased by 5.3% year-on-year.
Kazaks believes that the core CPI data still exposes many problems, and policymakers still have a lot to do. “I would like to see us deal with inflation once and for all, rather than being forced to come back with a vengeance that will only require larger-scale intervention later,” he said.
Kazaks said that would be fine if inflation fell back to the 2% target faster than currently expected due to the ECB’s decision, but he did not want to see it happen later than expected.
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2023-09-17 09:49:46
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