MNI BRIEF: ECB Rates At Good 'Cruising Altitude' - DNB's Knot

The ECB’s current level of interest rates are at a “good ‘cruising altitude’” Dutch central bank governor Klaas Knot said in a speech Thursday, adding that policymakers should “be a little patient and not raise rates too much to prevent choking off the economy,” although risks that high inflation could become entrenched remain.

“Personally, and conditional on incoming data confirming the latest projections from September, I see the current level of our policy rates as a good ‘cruising altitude’ where they can remain for some time,” Knot said. “The effects of the policy tightening on the real economy - think about investment, GDP, unemployment – will only be felt in about one year’s time," he added.

With the Governing Council considering the future of PEPP reinvestments, Knot noted that the unwinding of the ECB’s APP bond holdings has so far been “well-absorbed” by financial markets, while other central banks have been able to reduce their balance sheets at a faster pace. In future, however, refinancing operations may be the most efficient tools to provide necessary levels of reserves, he said.