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More rate hikes to come, say top ECB officials

FRANKFURT, GERMANY (AFP) – More interest rate hikes will be needed to rein in stubbornly high eurozone inflation, two senior European Central Bank (ECB) officials said yesterday.

“We need to remain highly data-dependent and err on the side of doing too much rather than too little,” ECB executive board member Isabel Schnabel said in a speech in Luxembourg.

“We thus need to keep raising interest rates until we see convincing evidence” of inflation returning to the ECB’s two-per cent target, she added.

The ECB has hiked rates at the fastest pace ever over the past year in a bid to cool inflation after the war in Ukraine sent energy and food prices surging.

The Frankfurt institution raised borrowing costs by another 0.25 per centage points last week, taking the key deposit rate to a 22-year high at 3.50 per cent.

Another rate hike at the next meeting in July was “very likely” unless there was a “material change” to the economic outlook, president Christine Lagarde said at the press conference last Thursday.

ECB chief economist Philip Lane echoed those words yesterday, saying at an event in Madrid that “it looks like another hike in July would be appropriate”.

But he said the ECB’s next moves would depend on incoming data, and it was too early to speculate on what policymakers might decide at their September meeting.

“For me, September is so far away,” he said.

“That’s months away in terms of all the data we’re going to learn,” he added.

Eurozone inflation slowed to 6.1 per cent in May year-on-year, down from a peak of 10.6 per cent last October, mainly thanks to falling energy costs.

Based on its latest forecasts, the ECB expects inflation to come in at 5.4 per cent over the whole of 2023, before easing to 2.2 per cent in 2025.

The European Central Bank in Frankfurt, Germany. PHOTO: AFP