The European Central Bank headquarters in Frankfurt, Germany, on March 16.HEIKO BECKER/Reuters
The European Central Bank’s rate hike on Thursday may have been its last for now but policy-makers will need until March to be sure and further rate hikes cannot yet be ruled out, Slovak policy-maker Peter Kazimir said on Monday.
The ECB raised its deposit rate to a record high 4 per cent last week and hinted at a pause, raising expectations in the market that its next move will be a cut, possibly as soon as late spring 2024.
“Only the March forecast can confirm that we are heading unequivocally and steadily towards our inflation goal,” Kazimir said in an opinion piece. “That is why I cannot rule out the possibility of further rate increases today.”
Kazimir was one of the few policy-makers in the run up to the September policy meeting to openly call for a rate hike, arguing that underlying inflation continues to simmer and was at risk of getting stuck above the target.
He added that even if the ECB was at the so-called terminal rate, or the peak in interest rates, the bank would need to chart steady course for an extended period.
“Assume we’re (already) at the top. If so, we may have to stay camping here for quite some time and spend the winter, spring and summer here,” Kazimir said.
“It is, therefore, premature to place market bets on when the first interest rate cuts will occur,” he added.
The end of rate hikes would also start a new phase of the policy discussion and policy-makers would then need to debate what to do with the bank’s two bond purchase schemes, the Pandemic Emergency Purchase Programme (PEPP) and the Asset Purchase Programme (APP).
Maturing debt in the PEPP is scheduled to be reinvested until the end of 2024 and some policy-makers say this end date should be revisited. Others meanwhile argue that bonds in the APP could now be sold off.
“As soon as incoming economic data and analyses confirm that further tightening is unnecessary, I see room for a debate about adjusting the pace of our quantitative tightening,” Kazimir said.