3 weeks ago
ECB Officials Acknowledge Markets' Expectations of Further Rate Hikes
The European Central Bank recently raised interest rates to 2.5%.
Interest rates affect how expensive it is to borrow money.
Some investors think the bank will raise rates three more times.
Ulo Kaasik said those expectations make sense because prices are still rising.
He also said rates may not yet be high enough to slow the economy much.
Gediminas Simkus agreed that inflation is too high.
He said energy costs are a major reason prices are rising.
Simkus did not predict what the ECB will do next.
The ECB is trying to bring inflation closer to its 2% target.
The European Central Bank raised its key interest rate by 25 basis points to 2.5% on Thursday.
ECB Governing Council member Ulo Kaasik said further market-expected rate increases are understandable given current developments.
Kaasik said the current rate level is not yet high enough to significantly restrict economic activity.
Lithuanian official Gediminas Simkus said inflation remains too high in both the euro zone and Lithuania.
Investors are pricing in three additional hikes, with oil prices again above $100 a barrel and inflation near 3%.
- Who
- European Central Bank Governing Council members Ulo Kaasik and Gediminas Simkus, along with investors and ECB officials.
- What
- The ECB raised its interest rate to 2.5%, while officials discussed market expectations for additional increases.
- Where
- The comments concerned the euro zone, Lithuania and the ECB; Kaasik spoke to Aripaev and Simkus spoke to Lithuania's LRT broadcaster.
- When
- The rate increase was announced Thursday, and Kaasik and Simkus commented on Friday.
- Why
- The ECB is raising borrowing costs to address inflation, which officials said remains too high and is being driven largely by energy prices.
Further Hikes Appear Understandable
Future Decisions Should Remain Open
How to interpret the next rate moves
Further Hikes Appear Understandable
Ulo Kaasik said market expectations of continued rate hikes are understandable given current developments and suggested the current rate is not yet very high.
Future Decisions Should Remain Open
Gediminas Simkus said the latest decision was not a commitment about future policy and declined to speculate on what the ECB might do next.
Key facts
- Latest ECB rate
- 2.5% after a quarter-point increase on Thursday
- Inflation level
- Around 3%, according to the report
- ECB inflation target
- 2% over the medium term
- Market expectations
- Investors are pricing in three more rate hikes
- Oil price
- Above $100 a barrel
- Kaasik's assessment
- The current rate level should not yet directly tighten economic activity too much
- Simkus's position
- Inflation is too high in both the euro zone and Lithuania, but he declined to speculate on future ECB decisions
Quotes
Gediminas Simkus
Lithuanian member of the European Central Bank Governing Council
“It’s true the markets are expecting the interest-rate hiking cycle to continue, and looking at the current developments it’s understandable why the markets think that.”
livemint.com
“I would certainly not consider the current level very high yet. Rather it’s a level that should not yet perhaps directly tighten economic activity too much.”
livemint.com
Sources
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