VILNIUS/PRAGUE—The European Central Bank is likely to raise rates again in May after having already hinted at a rate hike in March, two policymakers said on Friday. horizon.
The ECB hiked interest rates by half a percentage point to 2.5% on Thursday and promised a similar move in March, but it has left options for further action after that, with investors pushing to curb inflation. It calls into question the determination to keep raising interest rates.
But even with recent improvements, Peter Kazimir of Slovakia and Gediminas Simkus of Lithuania said the tightening would not end in March as inflation was still too high.
“The March price hike will not be the last,” Kazimir said in a statement. “We’ll decide how many we need later.”
Simkus said May’s rise could be 25 basis points or 50 basis points, but was unlikely to reach 75 basis points.
Shimkus said he did not specify where the rate hikes would end, but said the ECB may be nearing its peak.
“We’re seeing a positive trend in inflation,” Simkus said. “I think we’re already moving towards that terminal rate.”
In fact, analysts polled by the ECB expect the euro zone central bank to finally overcome inflation, but not for the next two years.
The market is now quoting the final rate at 3.35%, with some investors seeing just a 25bp move after already hinting at a move in March, while others saw a 50bp move. It suggests that
Both Kazimir and Shimkus opposed the idea that interest rates, currently priced in by the market, could be cut towards the end of the year.
But Simkus conceded that a rate cut in 2024 could be possible if a disinflationary trend of slowing inflation becomes noticeable.
It is possible that this is starting to happen. Firms surveyed by the central bank were planning price hikes at a slower pace and more confidently.