FILE PHOTO: ECB board member Klaas Knot appears at a Dutch parliamentary hearing in The Hague, Netherlands September 23, 2019 REUTERS/Eva Plevier
DUBLIN (Reuters) -European Central Bank (ECB) policymaker Klaas Knot is “not uncomfortable” with current market expectations which envisage interest rates rising to around 3.85% from 3% currently, the Dutch central banker told the Irish Times in an interview.
The ECB is expected to raise rates for a seventh straight meeting on May 4 in a bid to bring down stubbornly high euro zone inflation, with policymakers converging on a 25-basis-point hike, even if a larger move is not yet off the table, sources with direct knowledge of the discussion have told Reuters.
“We are now in what I would call mildly restrictive territory with policy rates, but inflation is not mild. Inflation is still much too high,” the newspaper on Thursday quoted him as saying.
“Mildly restrictive territory will not be enough to counter an underlying inflation rate that has been creeping up towards 6%. We need a sufficiently restrictive stance. Where is sufficiently restrictive, I don’t know, but clearly not where we are today.”
While euro zone inflation eased last month, underlying core inflation is at a stubbornly high 5.7%, raising worries in Frankfurt about the persistence of price pressures.
“It’s too early to talk about a pause. For a pause, I would really need to see a convincing reversal in underlying inflation dynamics,” Knot added.
ECB policymakers see underlying price growth accelerating for another few months before a plateau, and a meaningful decline may not come before the autumn.