The European Central Bank expects to continue raising interest rates “significantly” at future meetings, at a sustained pace, to ensure inflation returns to the 2 percent target over the medium term, ECB monetary policy chief Pablo Hernandez de Cos said on Wednesday.
“Keeping interest rates at restrictive levels will reduce inflation, moderating demand, and will also hedge against the risk of a persistent upward shift in inflation expectations,” de Cos said at a financial event in the afternoon.
His stance coincides with the ECB’s guidelines and comes after Mário Centeno, governor of the Bank of Portugal, said on Tuesday that the current process of interest rate hikes is nearing its end.
The ECB has made four successive rate hikes since July to stem a historic spike in inflation and has promised further increases to steer price growth toward its target.
The ECB sees inflation in the euro zone as exceeding its 2% target until 2025 and, in response, has raised interest rates by a total of 2.5 percentage points since July, its fastest pace of monetary tightening ever recorded.
If these projections are taken for granted, this would indicate that achieving the medium-term inflation target would require an increase in interest rates above what the market expected at the time, according to De Cos.
The governor of the Bank of Spain pointed out that since the last meeting of the Governing Council of the ECB there had been an increase in the maximum level of interest rates expected by the market of about 30 basis points, to around 3.4%.
However, he said that these market rates incorporated a positive premium and that “genuine market expectation of what maximum level the deposit facility rate would reach would be somewhat below that figure.”
In any case, he said it was crucial to continue to insist on the importance of taking into account “the extraordinary uncertainty we are experiencing” and added that the institution’s future decisions on interest rates would continue to be based on available macroeconomic data.