SINTRA, Portugal (Reuters) – The European Central Bank is likely to keep raising interest rates after its next meeting even as inflation remains too high even as the economy slows, European Central Bank policymaker Martins Cazaks said on Tuesday.
The latest economic survey paints a deteriorating picture for the euro zone and its economic powerhouse Germany, which is starting to feel the impact of rising borrowing costs and China’s weaker-than-expected economic performance after the end of the new crown epidemic restrictions .
But Latvia’s Central Bank Governor Kazakh said he expected the euro zone economy to only slow or stagnate, not contract, which should not deter the ECB’s efforts to combat high inflation.
“Economic weakness is unlikely to counter inflation, which remains high and the risks of persistence are substantial,” he told Reuters in an interview.
Earlier this month, the European Central Bank raised interest rates to the highest level in 22 years and said a ninth consecutive rate hike in July was almost certain, Because it expects inflation to remain above the 2% target. 22 end of the year.
Kazakhstan joins a growing chorus of policy hawks predicting that next month’s rate hike won’t be the last, arguing that the risk of doing too little outweighs the risk
“In my view, we still need to raise rates, and I don’t think we’ll be comfortable saying in July: ‘We’re done’,” he said. “I think a rate hike will be needed after July, but when and by how much will depend on the data.”
Money market prices show ECB raising bank deposit rate to 3.5 in June % and is expected to increase to 4.0% by the end of the year before raising rates further.
But Kazakhs are against market bets that the European Central Bank will cut interest rates in the first half of next year.
“The main problem with the market pricing is that rates are expected to fall so fast,” he said. “In my view, this is wrong because the market has to price in a different macro scenario, with inflation falling faster.”
He added that the first rate cut would be “later Much more” than the market expected, or closer to the middle of its three-year forecast period.
“I think a rate cut is warranted when this becomes the case To be sure, inflation is about to start significantly and remain below our 2% target. “Not at the end of the forecast period, but in the middle of the forecast period.” ”
Kazakhstan added that it was “too early” to start discussing the sale of bonds bought under the ECB’s asset purchase program over the past decade, but “it needs to be discussed”.
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