ECB’s Knot: Latest Inflation Data to Determine Magnitude of May Rate Hike
20 April 2023
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Thursday said that the size of the ECB’s expected rate hike next month – 25 or 50 basis points - would depend on the newest inflation data available then.
In an interview with the Irish Times, Knot, who heads De Nederlandsche Bank, was quoted as declaring himself ‘not uncomfortable’ with market expectations of a terminal rate of 3.75%.
‘We are now in what I would call mildly restrictive territory with policy rates, but inflation is not mild. Inflation is still much too high’, he said, according to the paper. ‘Mildly restrictive territory will not be enough to counter an underlying inflation rate that has been creeping up towards 6%.’
‘We need a sufficiently restrictive stance. Where is sufficiently restrictive, I don’t know, but clearly not where we are today’, he said.
‘It’s too early to talk about a pause’, he said, ‘For a pause, I would really need to see a convincing reversal in underlying inflation dynamics.’
Knot said he was ‘pretty confident’ that euro area banks could deal with the ‘significant valuation losses and valuation gains associated with these interest rate moves’.
Fiscal policy was ‘doing too much at the moment’, he criticised.