The European Central Bank may not be done with increasing borrowing costs, according to Vice President Luis de Guindos.
(Bloomberg) — The European Central Bank may not be done with increasing borrowing costs, according to Vice President Luis de Guindos.
“There could be more interest rate hikes, but their size will depend on upcoming data and the effect tighter credit will have on economic activity,” Guindos said in Barcelona on Thursday.
The ECB has already increased interest rates by 375 basis points in the current tightening cycle and is expected to raise them by another 50 basis points in two quarter-point moves in June and July. Still some officials are starting to accept that more may be needed beyond that, according to people familiar with the debate.
Relentlessly strong underlying inflation — which strips out volatile elements such as food and energy — is supporting that stance.
“There is no doubt headline inflation will continue to ease,” Guindos said. “But there are more doubts about underlying inflation.”
Guindos, who was Spain’s finance minister before joining the ECB in 2018, said Europe’s incomplete banking union is a major source of risk to the continent’s lenders.
“Lacking a joint deposit guarantee fund is one of the main vulnerabilities of the European banking system,” he said.
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