The ECB’s interest rate hikes are far from over. Chairman Klaas Knot of De Nederlandsche Bank warns against this in an interview with the business newspaper Financial Times. According to Knot, the ECB has just passed halfway through tightening its monetary policy in the fight against inflation.
Tight monetary policy includes raising interest rates to slow down the economy and also limit inflation. The sale of government bonds and corporate bonds that the central bank has bought in recent years also counts as tightening. From March, the ECB will no longer reinvest the repaid loans.
However, according to Knot, there’s still a lot of work to be done. He points out that the policy makers of the ECB, of which he is a part, will meet five times between now and July. The DNB boss thinks interest rates will rise by half a percentage point over the next few months and will only peak in the summer. “The risk of doing too little is even greater than that of doing too much. We are only at the beginning of the second half.’
The biggest challenge
Knot sees determining when interest rates are high enough as the biggest challenge for the ECB next year. As the ECB’s sole policy maker, Knot was already there when the central bank last implemented a series of rate hikes in 2011.
Then the bank was criticized because the eurozone entered a crisis shortly after those increases. But while underlying inflation was low at the time, excluding rapidly rising and falling energy and food prices, prices are now rising sharply.
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Tight job market
Knot is therefore more concerned about long-lasting high prices. These will stay high for longer because wages are soaring and companies want to pass this through with higher prices for their products. But Knot gets it. “Why should employees settle for a hit in purchasing power when the job market is so tight?”
However, he expects a recession following the ECB’s interest rate hikes to be short and limited. According to him, data from Germany, the euro zone’s largest economy, seem to indicate that “the worst may already be behind us”.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
