ECB’s Knot: Rates to Rise at ‘a Constant Pace of Multiple 50bp Hikes’

19 January 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot suggested on Thursday that he saw the ECB hiking by 50bp in March as well.

Speaking to CNBC on the margins of the World Economic Forum in Davos, Switzerland, Knot, who heads De Nederlandsche Bank, referred to ECB President Christine Lagarde’s guidance from December in saying that rates will rise at ‘a constant pace of multiple 50bp hikes’.

Asked whether this implied a 50bp step in both February and March, Knot said the phase of 50bp moves ‘will not stop after a single 50bp hike - that's for sure.'

Lagarde 'has used the plural "s" in her words and I am using the plural "s" here', he said.

Market developments over the past couple of weeks were ‘not entirely welcome’, he said, adding that he didn’t think they were compatible with a timely return of inflation to the ECB’s target. The markets have pared back ECB rate hike bets, following lower inflation figures and dovish media speculation.

'If I were a market participant I would take our words quite seriously', he said, implying that markets have not fully priced in the ECB’s tightening.

Asked about inflation developments in the euro area, Knot said he saw 'no signs of an abating of underlying inflationary pressure', and core inflation 'has not yet turned the corner'.

He warned against any supplementary fiscal policy stimulus in the coming year, which would 'enlarge our inflationary problem'.

As for the monetary policy outlook, 'at least until mid-year, we will be in tightening mode', he said.