ECB’s Makhlouf: Need to Hike by 50BP in February and in March, Even if Data-Dependent

25 January 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Wednesday called for the ECB to hike rates by 50bp both in February and in March, subject to developments.

In remarks at Ireland’s Joint Oireachtas Committee on Finance, Makhlouf, who heads the Central Bank of Ireland, said that even after subsiding somewhat lately, inflation ‘remains far too high’ and restoring price stability ‘is necessary for a stable economic environment to support long-term growth.’

‘We need to continue to increase rates at our meeting next week – by taking a similar step to our December decisions – and also at our March meeting, although our future policy decisions need to continue to be data-dependent given the prevailing uncertainty’, he said.

Reiterating standard ECB language, Makhlouf called for interest rates to ‘rise significantly at a steady pace to reach levels sufficiently restrictive to ensure a timely return of inflation to our 2% medium-term target.’

Rate hikes demonstrate the ECB’s determination to return to price stability by sending a ‘clear message’ of opposition to inflation above 2%, he said. They also help to ‘contain inflation expectations, guarding against the emergence of self-reinforcing inflation dynamics and tackling the risk of a persistent increase in inflation expectations’, he added.

Easing energy prices suggest that Irish inflationary prospects are improving, he said.

‘Our expectation remains that inflation peaked in Q4 of 2022 and will moderate as the year progresses – assuming no further shocks – supporting consumer spending and overall economic activity as the year progresses’, he said.