JACKSON HOLE, Wyoming (Reuters) – A now highly likely euro zone recession will not be enough to bring down inflation and the European Central Bank (ECB) is expected to opt for a sharp rate hike again next month , said Martins Kazaks, one of the members of the Board of Governors.
The ECB raised interest rates in July for the first time in 11 years, raising its deposit rate by 50 basis points to zero, as inflation fears outweighed the risks of a deterioration of the situation.
“Concentrating rate hikes at the start of the period is a reasonable choice of monetary policy,” the governor of the Bank of Latvia told Reuters. “We need to be able to discuss both 50 and 75 basis points as possible hikes.”
“From the current perspective, it should be at least 50,” he added in an interview on the sidelines of the economic symposium hosted by the US Federal Reserve in Jackson Hole, Wyoming.
At 8.9%, inflation is more than four times higher than the ECB’s price hike target and is expected to rise further before a slow decline.
Core inflation, excluding highly volatile food and energy products, is also too high, suggesting that inflation is now entrenched in the economy via second-round effects.
While with zero rates the ECB continues to support the economy, Martins Kazaks believes that the European Central Bank should reach a neutral level, which does not slow down or stimulate growth, in the first quarter of 2023.
“If we see that we have to go beyond the neutral point, I have no doubt that we will,” he added. “But let’s not rush.”
(Report Balazs Koranyi, French version Jean-Stéphane Brosse)