ECB’s de Guindos: ‘I Would Not Rule out Further Rate Hikes After March’
8 February 2023
By David Barwick – FRANKFURT (Econostream) – The European Central Bank may continue raising official borrowing costs beyond a very probable 50bp hike next month, ECB Vice President Luis de Guindos said Wednesday.
In an interview with German daily Süddeutsche Zeitung, de Guindos said that after last week’s 50bp rate hike, the ECB would ‘very likely’ increase interest rates ‘by another 0.5 percentage points at our next meeting in March.’
‘We will then see what we will do’, he continued. ‘I would not rule out further rate hikes after March. The battle against inflation is not over yet.’
January euro area HICP was 8.5% ‘despite the fall-off in energy prices’, whilst core inflation was at an all-time high since monetary union came about, he observed. ‘That is not good’, he said.
There were ‘some favourable developments which are alleviating the pressure of inflation’, among them cheaper energy, a stronger euro and easing supply constraints, he said.
‘However, we see that the reopening of the economy in China after the lockdown is leading to greater demand, for energy, for metals and for commodities’, he said. ‘That can generate more price pressures. And wages are rising too.’
Inflation would subside to an average of 3.6% in the last quarter of the year, but backward-looking wage earners may seek ‘excessive pay rises’, he said. ‘We need to be careful.’
A wage-price spiral would necessitate even more monetary tightening, he said, suggesting that governments soften the inflation blow via targeted support that would allow for more moderate wage demands.
Asked if the ECB were running the risk of going too far with its tightening, de Guindos merely referred to the central bank’s duty to safeguard stable prices. ‘That’s it’, he said. ‘That’s the only mandate we have.’
The measures taken by the Governing Council to date were already having some effect, such as higher borrowing costs at the level of companies and households, he said. By reducing loan demand, this was ‘helping to cool the economy and is leading to lower price increases’, he said.
Still, financial markets’ buoyant mood may indicate that they are ‘overly optimistic with regard to inflation developments and our monetary policy response’, he said.