ECB will have to raise rates again, extent uncertain, Kazimir says
TLT•European Central Bank policymaker Peter Kazimir said rates will need to rise again to prevent high inflation from becoming entrenched, though the scale of further action is uncertain. Markets may be underestimating what is needed, he said.
1. Further action needed
The European Central Bank will have to raise interest rates again to prevent high inflation from becoming entrenched, Slovak central bank chief Peter Kazimir said. The ECB held rates unchanged last week after two rate hikes, while some policymakers have argued for further increases sooner rather than later.
2. Inflation risks persist
“For me, the question is increasingly not whether further action will be needed but how much more will be required,” Kazimir said, adding that markets may underestimate what is needed to bring inflation back to target and keep it there. Financial markets see two to three ECB rate hikes over the next year, followed by a slow retreat, while market-based indicators suggest inflation will remain above the ECB’s 2% target for years.
3. Pause not a finish line
Kazimir said cost pressures could build before businesses pass them on, and inflation expectations could shift before broader price pressures appear in data. He added that government budget support and a lack of fiscal prudence could keep price pressures elevated. “Last week’s pause was not a finish line,” he said.
