Amid underlying inflationary pressures, further interest rate hikes may still be needed, members of the European Central Bank’s Governing Council admitted. At the same time, the cycle of the highest increases could soon be over, officials said.
End of the most aggressive rate hikes in sight despite inflation, but more to come before it’s over
Two members of the Governing Council of the European Central Bank (ECB) shared their assessments of the outlook for inflation in the euro zone and expectations for the monetary authority’s next steps in this regard, Bloomberg reported.
According to Boris Vujčić, most of the current cycle of interest rate hikes is over, although others may follow. Speaking in his home country on Wednesday, the governor of the National Bank of Croatia said further hikes can be expected if core inflation, or long-term inflation, remains above 4%.
Vujčić explained that while consumer price gains have moderated, mainly due to base effects, underlying pressures, excluding volatile items like food and energy, remain elevated.
The Governing Council is the Eurosystem’s main decision-making body, comprising the six members of the ECB’s Executive Board as well as the governors of the national central banks of the 20 countries that have adopted the common European currency.
At the same event in Croatia, Vujcic’s colleague on the Council, Boštjan Vasle, told participants that the growth in prices for services, among other areas, is moving further and further away from the ECB’s 2% target. . He was quoted as having said:
Core inflation is clearly on the rise.
Vasle, who is the governor of the Bank of Slovenia, added that further monetary tightening is likely needed, warning that past shocks may not have fully filtered through the system yet.
Other ECB officials have recently hinted that the end of the Eurozone’s most aggressive rate hike period is in sight. However, despite lingering concerns about the health of the banking sector, they believe further measures are needed to bring inflation under control.
Among them is Austria’s central bank chief Robert Holzmann, who said this week that another half-point step remained “on the cards”. Policymakers will announce their next rate decision in May. Last week, the Governor of the Banque de France, François Villeroy de Galhau, hinted that “we may still have a little way to go”.
In March, the European Central Bank raised the deposit rate from 2.5% to 3%, even amid a deepening crisis with Swiss banking giant Credit Suisse. Amid the current uncertainty, ECB leaders have been less willing to predict future moves.
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