Kazimir says markets are underestimating the ECB rate rises needed to curb inflation
Slovak central bank chief Peter Kazimir said the ECB will need to raise interest rates again, warning that markets may underestimate how much tightening is required to keep inflation from becoming entrenched. The ECB held rates last week; Kazimir said the pause was not a finish line and that the question is how much more action is needed.
Bottom line — Markets price in two to three ECB rate rises over the next year, but Kazimir says that may not be enough.
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Reuters reports that several policymakers have argued for further rises sooner rather than later, citing high energy costs.
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Markets currently expect two to three rate rises over the next year before a gradual retreat, according to Reuters.
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Reuters says market-based indicators point to inflation remaining well above the ECB’s 2% target for years.
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Kazimir argues that companies may absorb cost pressures before passing them on, so inflation can build before it appears in the data.
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The ECB held rates on the view that second-round inflation effects had yet to take hold, wage growth was muted and higher borrowing costs could weigh on growth, Reuters reports.
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Kazimir says government spending is cushioning growth, while a lack of fiscal prudence can keep price pressures elevated, according to Reuters.