The European Central Bank (ECB) will still have to raise interest rates in the Eurozone in June and July to get high inflation under control. Indeed, inflation is proving more persistent than expected, stressed President Klaas Knot of De Nederlandsche Bank (DNB) in an interview with four major European newspapers.
If a peak is reached after the increases, interest rates will have to remain at that level for a “long period of time”, Knot told Corriere della Sera, Les Echos, Handelsblatt and El Mundo. The DNB president is also a director at the ECB.
Earlier this month, the ECB raised interest rates by another 25 basis points. ECB president Christine Lagarde has said the bank is not done raising interest rates yet.
Financial markets are taking those announced increases into account. Therefore, according to Knot, the ECB must also “deliver” in June and July. The DNB president is known within the ECB as an advocate of aggressive interest rate hikes to tackle inflation.
The central bank has been trying to get inflation down by raising interest rates since last year. That makes borrowing money more expensive. That combined with the fact that saving pays more when interest rates are higher, makes people spend less money. As a result, the economy cools and prices will rise less. Knot argues that most of the impact of the interest rate hikes is yet to be seen.
DNB managing director Olaf Sleijpen said at a briefing in the Dutch parliament earlier this month that the inflation picture is still “worrisome”. As long as core inflation (which excludes food and energy, among other things) remains too high, he said, the ECB should take further steps.
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