MNI BRIEF: ECB Should Hike In July, Then Gradual To 1%- De Cos

The ECB should raise interest rates inJuly and could continue hiking in the following months, exiting negative rates before the end of Q3 and gradually moving towards a long term “natural interest rate” that is around 1% "or slightly above”, Bank of Spain Governor Pablo Hernandez de Cos said Tuesday.

The move to higher rates should be gradual due to the high level of uncertainty and the relatively narrow gap between the current level of official interest rates and the estimates of the long term natural interest rate, De Cos said in a speech in Barcelona. “It is not optimal to commit to a specific interest rate path,” he said (MNI SOURCES1: ECB Seen Making Two To Three 25-BP Hikes In 2022).

Flexibility will continue to be crucial for the ECB’s monetary policy, he said, adding that PEPP reinvestments should be flexibly adjusted “across asset classes and across jurisdictions in the event of renewed market fragmentation”, he pointed out. The ECB has also shown in the past that it can quickly design and use new instruments to ensure the transmission of monetary policy, he noted.