Market Outlook

ECB’s Knot Says Policy Rate Can Start Rising in Early 2023

(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Most Read from Bloomberg

The European Central Bank will be ready for an interest rate hike in early 2023 after ending the remaining bond purchases by the end of next year, Governing Council member Klaas Knot said.

“All switches are on track to end the remaining bond buying by the end of next year — and when that’s done, the policy rate can go up early 2023,” he told Dutch Trouw newspaper in an interview published Thursday.

Asked if his colleagues in Frankfurt have a similar time frame in mind, Knot said that “we’ll have to see, but I do think so. A lot will depend on how the economy will develop next year, a year is long.”

Earlier this month, the ECB confirmed that it would wind down its pandemic bond-buying program but temporarily expand an older quantitative easing program to cushion the transition.

Knot’s sentiment was echoed by his fellow Governing Council member Robert Holzmann, who heads Austria’s central bank and has a similarly hawkish stance.

“The decisive factor in the new year will be to gradually initiate the exit from negative interest rates and unconventional monetary policy and to avoid any proximity to monetary state financing,” Holzmann said in a year-end statement on his institution’s website.

The ECB has had a negative deposit rate since 2014. Money markets are wagering on at least 10 basis points of hikes from the ECB in December 2022, based on euro short-term rate pricing.

Other major central banks are tightening monetary policy more quickly. The Federal Reserve has doubled the pace of its stimulus exit, and the Bank of England earlier this month delivered a surprise rate hike — the first among major central banks since the pandemic struck — citing “more persistent” inflation.

Read more: ECB Acts to Avert ‘Brutal Transition’ in Exiting Crisis Mode

The omicron variant is likely to have little influence on prices next year for the time being, Knot said, but if the impact is bigger, he believes the ECB is ready to change its policy faster than currently planned.

Speaking in a separate interview published in Germany’s Boersen-Zeitung, Knot said that “inflation can go either way because of omicron.”

“Further supply bottlenecks would be inflationary. Temporary declines in aggregate demand would initially put downward pressure on inflation. We have to monitor and remain vigilant.”

The chief of the Dutch central bank told Trouw newspaper he sees the risks of persistent inflation slightly stronger than the Frankfurt-based monetary authority. Several policy makers cast doubt on the likelihood of inflation slowing to exactly 1.8% in 2023 and 2024 as the ECB forecasts.

Still, Italian central bank chief Ignazio Visco said in an interview with La Stampa published Thursday that the risks to ECB’s inflation estimates “are not only upwards.”

(Updates with Knot on inflation starting in 10th paragraph)

Most Read from Bloomberg Businessweek

©2021 Bloomberg L.P.

Buka akaun dagangan patuh syariah anda di Weltrade.
Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button