ECB’s Nagel, Makhlouf point to rate hikes beyond March

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Joachim Nagel and Gabriel Makhlouf, policymakers at the European Central Bank, said on Wednesday they would not be surprised if interest rates continued to rise in the second quarter, following two hikes planned for February and March.

The ECB has pledged to raise its policy rate by half a percentage point next week to 2.5 percent, but monetary authorities expressed different preferences for March, suggesting the debate is wide open despite the guidance of a significant tightening of monetary policy at a “steady pace.”

Makhlouf said that, as things stand, rates will have to rise again in March, but policymakers need to “wait and see exactly what the data tells us.” Nagel said the ECB had already committed to raising rates again strongly in the next two months.

Both agreed that the increases are unlikely to stop there.

“Given that inflation is very high and core inflation has risen slightly, it would not be surprising if we continued to raise interest rates beyond the first quarter,” Makhlouf, governor of the Irish central bank, told lawmakers in Dublin.

Nagel, president of Germany’s Bundesbank, told Spiegel magazine that “I wouldn’t be surprised if we had to keep raising rates even after the two measures announced.”

A third policymaker, Slovenia’s Bostjan Vasle, joined his Dutch and Slovak counterparts in explicitly calling for a 50 basis point rate hike in March. ECB President Christine Lagarde also appeared to back this increase this week.

Others, such as Greek and Italian central bank chiefs, have called for more caution and gradual measures, prompting markets to swing between 25 and 50 basis point hikes as monetary authorities publicly discuss the outlook for rates.

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Although euro zone inflation slowed to an annualized 9.2% in December from 10.1% the previous month, Makhlouf indicated it remains “too high.”

“Interest rates will have to rise significantly at a steady pace to reach levels sufficiently restrictive to ensure a timely return of inflation to our 2% target over the medium term,” he said.

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