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The
ECB has lifted rates at each of its past seven meetings to fight
a historic surge in consumer prices and policymakers have
signalled further hikes to come as inflation pressures continue
to build.
But the bank slowed the pace of hikes to 25 basis points last
week, the smallest increment since tightening started last July,
arguing that past measures are still working their way through
the economy and overall inflation was past its peak.
"Based on today's data, we will have to keep raising interest
rates for longer than anticipated," Kazimir, Slovakia's central
bank chief, said in a blog post. "So, slowing down the pace to
25 bps is a step that will allow us to go gradually higher for
longer, should that be necessary and warranted by incoming
data."
Markets currently see another 40 basis points of increases in
the ECB's 3.25% deposit rate, indicating that investors fully
expect another move but are split on subsequent steps, and even
anticipate rate cuts in early 2024.
That appears to be in contrast with the views of some
policymakers who speak of rate hikes in the plural and argue
that once rates hit their peak, they should stay there for some
time.
The ECB sees inflation falling under 3% by the final quarter of
this year, then taking almost two more years to ease back to its
2% target.
Part of the worry is that high underlying price pressures and
relatively quick nominal wage growth will keep upward pressure
on prices for some time to come.
"The development of core inflation, the continued buildup of
wage pressures, and high-profit margins call for vigilance and
reconfirm the need to continue on our path," Kazimir said.
"Our September forecast will be the earliest date to answer how
effective our measures are and whether inflation is moving
towards the target."
(Reporting by Balazs Koranyi; Editing by Christina Fincher)
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