Two prominent hawks on the European Central Bank’s (ECB) policymaking Governing Council predict that the bank will likely need to hike interest rates further. To combat persistent inflation while downplaying the likelihood of a repeat of the 2008 financial crisis.
The central bank directors of Austria and Belgium backed up remarks made a day earlier. By two other hawks, their colleagues from Slovakia and Lithuania, and argued for higher rates to control inflation. Which is currently running at 8.5% in the eurozone.
Last Thursday, as promised, the ECB increased interest rates by 50 basis points. In doing so, it resisted calls from some investors. To hold off on tightening policy until the banking sector’s unrest subsided.
Pierre Wunsch of Belgium and Robert Holzmann of Austria both stated that additional action would probably be required.
Inflation is proving to be considerably tougher than anticipated, Holzmann told ORF 1 radio in Austria. “I do anticipate a few more interest rate increases.” The extent of future hikes, he continued, would depend on the facts.
Since last July, the ECB has increased interest rates by 350 basis points, bringing the benchmark refinancing rate to 3.5% on Thursday.
Wunsch told the Belgian newspaper L’Echo, “We know that we need to do more of this. “At what level? That is unclear. Meeting by meeting will take place.
Holzmann’s response to the question of how high the benchmark rate would rise was, “Some of us are hoping it will stay below 4%.
It will probably rise above 4%, I’m afraid. Wunsch said the ECB had a “far way to go” if its baseline inflation projection materialised.
Based on predictions it claimed had been made before to a significant selloff in bank shares this week. The ECB anticipated last Thursday that inflation would remain over its 2% objective through 2025.
The ECB admitted that the future had grown more uncertain as a result of the failure of two American banks and new issues at the Credit Suisse Group.