ECB’s Müller: Will Have to Hike Probably Higher Than Markets Have Expected So Far

16 December 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Madis Müller on Friday said that the ECB’s terminal rate would likely be higher than what markets have thus far envisioned.

In a blog post on the website of the Estonian central bank, which he heads, Müller said that Thursday’s 50bp rate hike was decided by the Council ‘with the understanding that we will have to raise interest rates further in the future and probably higher than the financial markets have expected so far.’

There was ‘unfortunately little good news’ with respect to inflation, he said, with expectations of ‘strong pressure in the euro area especially for food price increases next year as well’, he said. ‘But the price increase of other goods and services will probably be faster than we expected three months ago. This is supported, among other things, by the rising wages in the euro area.’

The current quarter and the next would see the euro area in recession, he said, but ‘[w]e cannot rely on the fact that the expected slowdown in economic growth alone will sufficiently slow down the price increase.’

Although ‘it would also be dangerous to get into a permanent spiral of price and wage increases’, he said, there was no need to ‘directly fear’ this as of today.