ECB’s Knot: Expect Rates Lift-Off Around 4Q, Second Step Sometime in Spring 2023

7 February 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank will probably start hiking interest rates around the end of this year and then follow with a second increase in the spring of next year, Governing Council member Klaas Knot said Sunday.

Speaking on Dutch television interview programme Buitenhof, Knot, who heads De Nederlandsche Bank, said, ‘I personally think that our first interest rate increase will take place around the fourth quarter.’

He had ‘no reason’ to suppose that the ECB would move in steps of other than 25 basis points, he said.

‘That will then be the start of what we call a tightening cycle of a number of steps, and each time we will look at what effect this step has had on the inflation outlook, and on the basis of the outlook, we will then look at whether more steps are needed’, he said. ‘In any case, I expect the first two steps to be taken fairly quickly, because they are the steps that will get us out of negative interest rates, so they will follow each other reasonably quickly.’

The second step could be expected ‘sometime in the spring of '23’, he said.

The ECB might not need to be in any more of a hurry, given that ‘we are not in the situation of the United States, where inflation is of domestic origin, where the wage-price spiral is also already taking place’, he said.

However, before any increase in interest rates, the ECB needs to end its asset purchases ‘as soon as possible because that is just fuel on the fire’, he said.

Knot expressed the view that ‘at least for most of this year, inflation in the euro area will remain above 4%’. This, he added, ‘is definitely not good news.’