The European Central Bank (ECB) has indicated that it is likely to continue to increase key interest rates due to the persistent inflation in the eurozone. Despite varying opinions on how aggressive the ECB should be, two central bank governors agreed that further rate hikes are warranted. The head of the French central bank, Francois Villeroy de Galhau, acknowledged that the ECB has done most of the work in terms of rate hikes but still has a "little way to go." He believes that the biggest impact will come from previous rate increases, and the tightening can stop once inflation starts turning around.
The Governor of Austria's central bank, Robert Holzmann, who is considered a hawk among the Council's members, stated that the ECB needs to keep raising interest rates. He insists that the persistence of inflation currently argues for another 50 basis points increase. Holzmann revealed that there is a great deal of common understanding in the ECB Governing Council that they have not yet reached the end of rate hikes. He believes that the ECB must continue to act decisively and raise key interest rates noticeably even beyond May.
The Governor of the Croatian National Bank, Boris Vujčić, and his colleague at the Bank of Slovenia, Boštjan Vasle, also recently highlighted expectations for further rate increases. Vasle acknowledged that core inflation is clearly on an upward trend, while Vujčić acknowledged that more rate hikes may follow. The ECB has raised interest rates by 350 basis points since July 2022, including three back-to-back 50 bps increases. The next decision is expected in early May, and policymakers will determine how much higher than 3% the deposit rate needs to be to bring inflation down to the 2% target.
In conclusion, the ECB appears set to continue increasing key interest rates in the face of persistent inflation in the eurozone. Although opinions on how aggressive the ECB should be vary among central bank governors, there is a general consensus that further rate hikes are warranted. The upcoming decision in early May will shed light on how much higher the deposit rate needs to be to bring inflation down to the 2% target.
