The ECB has raised rates at each of its past nine meetings and policymakers are now debating whether to raise the deposit rate again, to 4%, or pause, given the deteriorating growth outlook that is boosting recession fears.
Kazimir, an outspoken conservative, said that one more rate hike was necessary since inflation remained stubbornly high and inflation expectations were too far above the ECB’s 2% target.
“One option is to take a break in September and, if necessary, deliver another (hopefully final) increase by 25 basis points in October or December,” Kazimir said in an opinion piece.
“The second option seems preferable, reasonable, to me,” he said. “It is to deliver another 25 basis points next week and take a breather thereafter.”
He argued that a hike now would be a “more straightforward and efficient solution” which would provide clearer signals to markets and give more time to policymakers to see that inflation was on a sustainable path towards 2%.
Few policymakers have expressed such a clear preference ahead of next week’s meeting and most said they were open to the discussion.
Market pricing also reflects this uncertainty as investors now see only a 1 in 3 chance of a hike next week but consider a move later, perhaps in October or December, as more likely.
While most growth indicators have underperformed expectations, overall inflation is still above 5% and underlying price growth, a key gauge on the durability of price growth, is just past its peak.
Many policymakers are also holding out for fresh economic projections due at the meeting but the accuracy of these forecasts has been poor in recent years and focus has shifted to actual data from forward looking indicators.
“Forecasts for inflation and economic growth are yet to be updated. They remain, however, highly uncertain, given in particular the unclear outlook for wage developments,” Kazimir said.
“It is, therefore, necessary to take one more step. As they say, better to be safe than sorry,” Kazimir said.
Source: Economy - investing.com
