ECB could raise rates above 3.5%, says official

ECB could raise rates above 3.5%, says official The European Central Bank could increase interest rates above 3.5% and likely won’t cut them this year as the bank moves forcefully to bring inflation back on target, a top ECB official said, Report informs via the Wall Street Journal
Finance
February 15, 2023 11:32
ECB could raise rates above 3.5%, says official

The European Central Bank could increase interest rates above 3.5% and likely won’t cut them this year as the bank moves forcefully to bring inflation back on target, a top ECB official said, Report informs via the Wall Street Journal

The comments by Gabriel Makhlouf, Ireland’s central-bank governor, underscore a likely divergence between the ECB and the Federal Reserve this year as Europe’s inflation rate proves sticky and its growth resilient to Russia’s war in Ukraine.

They suggest the ECB could increase rates by more than 1 percentage point from the current level of 2.5%, already the highest since 2008. That would weigh on the region’s economy, pushing up borrowing costs for homeowners and businesses and curbing spending and investment.

Investors had previously expected the ECB to raise rates to about 3.5% in July and start to cut them later this year or early next year. They expect the Fed to raise rates by about half a percentage point through July, to roughly 5.2%, before cutting rates to about 4.9% in December, according to data from Refinitiv.

“I could see it [interest rates] being higher than 3.5%,” said Makhlouf in an interview. “I’m open to acting forcefully to get inflation down to our target.”

Gabriel Makhlouf doesn’t speak for the ECB as an institution but his comments are notable because he is considered a centrist on the spectrum between those committee members who want significantly higher rates and those who think the bank has done enough. ECB President Christine Lagarde said earlier this month that the bank intends to raise rates to 3% at its next policy meeting on March 15-16, but gave no guidance beyond that.

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