FRANKFURT (Reuters) – Markets may be underestimating the ECB’s interest rate hike plans and investors should take more seriously its prospect of rate hikes in multiples of 50 basis points, Dutch central bank governor said. Guidance Klaas Knot said on Thursday. Expect smaller growth and lower interest rate peaks.
“That’s for sure, it’s not going to stop after one 50 basis point hike,” Knot said in an interview with CNBC. “I do think we’re going to be in tightening mode at least until the middle of the year.”
“The kind of market development I’ve seen in the last two weeks or so is not entirely welcome,” Knot said in Invest The latter said after ruling out a rate hike. “In fact, I don’t think they are compatible with inflation getting back to 2% in time.”
Knot said too little of the current focus on tightening by banks and a more balanced perception of risk still needs to be done. time.
The market now expects the European Central Bank’s 2% deposit rate to rise to around 3.2% by the middle of the year, down sharply from around 3.5% priced at the beginning of the year. While February’s 50 basis point hike was fully priced in, the market was oscillating between 50 and 50 in March.
Some of the changes have to do with expectations of a more dovish rate hike from the Fed and expectations that the ECB will follow its U.S. counterpart if it slows or stops raising rates.
But while U.S. inflation may have peaked, eurozone inflation could still be higher, while core inflation, which filters out volatile food and fuel prices, remains Rising.
“Core inflation shows no signs of abating,” Knott said. “Before I start thinking about a more equal balance of risks, I first need to see a different dynamic in core inflation.”
