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Knot: ECB may raise interest rates through July

The European Central Bank (ECB) may also have to raise interest rates in the eurozone in June and July, following a rate hike at its next policy meeting in May.

“It is too early to talk about a break,” Klaas Knot, president of De Nederlandsche Bank (DNB), said in an interview with the Irish Times newspaper. “For a pause, I would really need to see a convincing reversal in underlying inflation dynamics.”

Interest

The ECB is widely expected to raise interest rates again on May 4 in the fight against inflation. There is still some doubt about the size of the interest rate hike. In addition to the increase in consumer prices, ECB policymakers will also take the consequences of the recent turmoil in the financial sector into account when deciding on an interest rate hike of a quarter or half a percentage point.

Supporter of rate hikes

According to Knot, who is known within the ECB as a proponent of aggressive rate hikes to tackle inflation, the size of the next rate hike will likely be determined by April’s inflation data. Those figures will be announced two days before the policy meeting. He went on to say he was “not uncomfortable” with the current market expectation that interest rates will increase by a total of 0.75 percentage points in the coming months.

Cooling

Since last year, the ECB has been trying to bring inflation down by raising interest rates, which makes borrowing more expensive. Inflation in the eurozone cooled considerably in March, but that was mainly because gas, oil and other energy sources became cheaper after last year’s extreme price increases. The so-called core inflation, which does not take into account strongly fluctuating prices for energy, food, tobacco and alcohol, did rise further.