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MNI INTERVIEW: ECB Likely To Keep Hiking Beyond March – Kazaks

(MNI) LONDON
Riga

The greatest danger for the ECB is too little tightening, not too much, Latvia's central bank chief tells MNI.

The European Central Bank will probably have to hike beyond March, raising key interest rates at a slower pace but for an extended period even as the economy slides into recession, Bank of Latvia Governor Martins Kazaks told MNI, also calling for the ECB to start reducing its stock of bonds in the first quarter of next year.

At present the greatest danger is from too little monetary policy tightening, rather than too much, with inflation only likely to move back in line with the ECB’s 2% target once rates reach restrictive levels, Kazaks said in an interview in Riga.

“We by no means need to take a pause, for instance, at the turn of the year. It does not mean that we need to raise the rate separately in each meeting, but we should continue. And we should be data driven,” said Kazaks, who in September said the ECB could continue to hike past February. (See MNI INTERVIEW: ECB Could Hike Past February – Kazaks)

While it is unclear how much demand would have to be sacrificed in order to tame inflation, Kazaks pointed to the continuation of some elements of Covid-related support programmes and to savings accumulated during the pandemic which have continued to prop up demand.

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The European Central Bank will probably have to hike beyond March, raising key interest rates at a slower pace but for an extended period even as the economy slides into recession, Bank of Latvia Governor Martins Kazaks told MNI, also calling for the ECB to start reducing its stock of bonds in the first quarter of next year.

At present the greatest danger is from too little monetary policy tightening, rather than too much, with inflation only likely to move back in line with the ECB’s 2% target once rates reach restrictive levels, Kazaks said in an interview in Riga.

“We by no means need to take a pause, for instance, at the turn of the year. It does not mean that we need to raise the rate separately in each meeting, but we should continue. And we should be data driven,” said Kazaks, who in September said the ECB could continue to hike past February. (See MNI INTERVIEW: ECB Could Hike Past February – Kazaks)

While it is unclear how much demand would have to be sacrificed in order to tame inflation, Kazaks pointed to the continuation of some elements of Covid-related support programmes and to savings accumulated during the pandemic which have continued to prop up demand.

Keep reading...Show less