The European Central Bank will need to raise interest rates at least once more to contain inflation and a deterioration in the outlook could warrant more tightening than now expected, Slovak central bank chief Peter Kazimir said on Monday.
The ECB left rates unchanged last week but clearly hinted at a rate hike at its next meeting in September as oil and gas prices both surged this month on renewed conflict in the Middle East.
“I remain of the view that at least one more hike will be needed as part of our measured adjustment to inflation risks,” Kazimir, an outspoken policy hawk, said in an opinion piece. “This is warranted even if the situation improves somewhat.”
He added that “very convincing” economic data and geopolitical developments would be needed in the coming weeks for him not to advocate a move in September.
A key reason the ECB held out this month was that the inflation surge has yet to generate any significant second-round price impacts but Kazimir said policymakers needed to act preemptively.
“They often form quietly. By the time they are fully visible, they are costly to reverse. Our task is to act before that point, not after,” he said.
Financial markets see at least two more rate hikes from the ECB, with the first move fully priced in by October and the second by March.
These expectations are highly volatile, however, and move with oil prices, which are now between the ECB’s “baseline” and “milder” scenarios.
“Should the situation escalate, with the price pressures becoming stronger and more persistent, we will need to tighten more over the next quarters than is currently expected,” Kazimir added.
“We did not surprise the markets in July, and we should not surprise them in September,” Kazimir said.
(Reporting by Balazs Koranyi)
