Key facts
- Kazimir said the question was increasingly not whether further action was needed but how much more would be required.
- He said markets might still underestimate what was required to bring inflation back to target.
- The ECB had kept rates unchanged the previous Thursday after two rate hikes.
- Markets saw between two and three ECB rate hikes over the following year, the report said.
The European Central Bank would have to raise interest rates again to stop high inflation becoming entrenched, and markets might be underestimating how much tightening was needed, Slovak central bank chief Peter Kazimir said in comments reported on November 2, 2022.
Kazimir, described in the report as a hawkish voice on the 27-member Governing Council, said the question was increasingly not whether further action would be needed but how much more would be required. He said markets might still underestimate what was required and that the issue was not one meeting or one move but the path needed to bring inflation back to target and keep it there.
The ECB had left rates unchanged at its meeting the previous Thursday, on the premise that second-round inflation effects had yet to take hold, wage growth was muted and growth was likely to take a hit from rising longer-term borrowing costs. A number of policymakers had since made the case for adding to the ECB's two rate hikes sooner rather than later, citing high energy costs that they argued would eventually set off second-round effects.
Kazimir said those assumptions were not necessarily as reassuring as some thought. Cost pressures could build before businesses passed them on, and expectations could shift before wider price pressures appeared in the data, he said. He also said a growth slowdown did not necessarily weaken inflation because cost pressures had been building for months, and that relatively solid growth, buffered by government budgets, and a lack of fiscal prudence could keep price pressures up.
Financial markets saw between two and three rate hikes from the ECB over the following year before a slow retreat, the report said, as market-based inflation indicators suggested price growth would be well above the ECB's 2% target for years.