Mon, Jan 23, 2023 page6

• ECB’s Knot wants half-point rate hikes

  HAWKISH: The Dutch central banker said the second half of the year might be a time to step down from 50 to 25 basis points, ‘but we are still far away from that’

  • Bloomberg
  • • 
    • 
    • 

  The European Central Bank (ECB) should continue with half-point interest-rate increases at the next two meetings and the time to slow the pace of hikes is “still far away,” according to Governing Council member Klaas Knot.

  “We made a step down in December from 75 to 50 basis points — that will be the pace for a multiple number of meetings,” Knot told La Stampa in an interview.

  “So that means at least the two in February and March,” he said. “I do think that we will continue to be in tightening mode until the summer.”

  

  De Nederlandsche Bank President Klaas Knot speaks during a panel session at the 53rd annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday. The meeting brought together entrepreneurs, scientists, corporate and political leaders in Davos under the topic “Cooperation in a Fragmented World” from Jan. 16 to 20.

  Photo: EPA-EFE

  The second half of the year might “be a time in which we could make a further step down from 50 to 25 basis points,” Knot said. “But we are still far away from that. I want to re-emphasize that this is not in sight for the upcoming meetings.”

  The hawkish Dutch central bank president already made the case for continued ECB tightening last week, arguing that underlying inflation is still rising, even as the headline measure slows.

  European Central Bank officials last year raised the deposit rate by 250 basis points to 2 percent and economists in a Bloomberg survey see them peaking at 3.25 percent by summer. Still, some officials consider slowing the pace of tightening as price pressures ease and energy costs drop, according to people familiar with their thinking.

  “In the December data, we saw a first decline in headline inflation, but that was entirely due to base effects and lower energy inflation,” Knot said.

  “We focus on core inflation where, unfortunately, there is no good news. Because it is still on the rise. Underlying inflationary pressures show no signs of abating yet,” he added.

  He is not alone in his pushback against taking the foot off the gas too quickly.

  ECB President Christine Lagarde told the World Economic Forum in Davos that policymakers would “stay the course,” and the central bank chiefs of Austria and Finland made a similar case in recent days.

  “At this moment, the risk that we have to manage is the risk that we do too little, not too much,” Knot said.

  Turning to quantitative tightening, which is set to start in March, Knot said he expects the “impact to be limited, which would allow us to gradually increase the 15 billion euros [US$16.32 billion] to ultimately 26 billion [US$28.28 billion] euros.”

  This would imply a complete halt of reinvestments for the ECB’s Asset Purchase Program, he added.

  “I also think we should go there cautiously and gradually, because we have never done it before,” the Dutch central bank governor said.
• Most Popular

  • 1

    Bologna advance to face AC Milan in Coppa final

  • 2

    Wild’s top line too much for Vegas Golden Knights

  • 3

    Taiwan draws attention at World Expo

  • 4

    China turns on the charm for Taiwan businesses: study

  • 5

    Wolves hold off Lakers 116-104 to take series lead