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MNI: ECB Could Hike 50 In March, May Unless Prices Ease - Knot

(MNI) London

The European Central Bank could follow up its intended 50-basis-point rate increase in March with another increase of the same magnitude in May if inflation pressures do not materially abate, Dutch central bank president Klaas Knot told an MNI Webcast on Wednesday.

Only once there is a clear turn in underlying inflation dynamics would the ECB be likely to shift to a lower pace of rate increases, Knot said, according to the text of prepared remarks, adding that core inflation is likely to stay around its current 5.2% for a few months before levelling off. Core services inflation could prove more persistent, he said, noting that the staggered nature of wage contracting in the euro area leads to an underestimation of current wage pressures.

The ECB’s combination of clear guidance regarding its near-term intentions with an insistence that it its decisions are data-dependent was the result of a shift to a more uncertain inflation environment, he said, but for the moment it was clear that a 50-basis-point hike was warranted in March.

“The rate path beyond March is more uncertain. At this point, as we still have quite some ground to cover, I consider it highly unlikely that the March hike will be our endpoint,” he said. “And if underlying inflation pressures do not materially abate, maintaining the current pace of hikes into May could well remain warranted.”

MNI London Bureau | +44 203-865-3829 |
MNI London Bureau | +44 203-865-3829 |

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