The outlook for inflation would need to head back to near the European Central Bank’s target to justify a slowing in the pace of interest-rate increases, according to Governing Council member Mario Centeno.
(Bloomberg) — The outlook for inflation would need to head back to near the European Central Bank’s target to justify a slowing in the pace of interest-rate increases, according to Governing Council member Mario Centeno.
New quarterly projections due in March will be “very important” in determining the path of monetary policy, the Portuguese central bank head said Monday. While he declined to speculate on the level at which borrowing costs may peak, he said the so-called terminal rate is approaching.
To slow the current pace of half-point rate hikes, “we really need to see inflation converging to 2% in the medium term,” Centeno told Bloomberg TV. “March will be very important to define exactly that moment because the new forecasts are going to tell us exactly where we are in that process.”
While record euro-zone inflation is retreating, the ECB intends to deliver another 50 basis-point increase in rates at next month’s meeting. The concern among officials is underlying price pressures, which are being driven by rising salaries and aren’t moderating so far.
That could yet lead to more big hikes beyond next month, with some of the Governing Council’s more hawkish members already signaling that such moves may be needed.
Latvia’s Martins Kazaks last week described inflation risks as “still tilted on the upside,” telling Bloomberg that rates will have to be pushed “significantly into restrictive territory.” Bundesbank chief Joachim Nagel said “more significant rate increases will be needed.”
For Centeno, the updated outlook due in March is key. There’s a “significant probability” that the forecasts will shed more light on the end point of what is the most aggressive bout of monetary tightening in the ECB’s history, he said.
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