Interest Statement from a Member of the European Central Bank: Will Increases Continue?

European Central Bank Governing Council member by Robert Holzmann His announcement that he supported a half-point rate hike at every meeting until July caused German two-year bonds to give back their gains.

Member of the European Central Bank Governing Council Makes Interest Statements

“I assume that core inflation will not weaken significantly in the first half of the year and will remain around the current level,” Holzmann said in an interview published Monday.

“In that case, I expect we will raise interest rates four more times this year by half a percentage point,” he said.

German two-year bonds reversed early gains on Holzmann’s comments and yields rose five basis points to 3.26%, the highest level since 2008.

Investors increased their rate hike forecasts by pricing a peak around 4.05% in the ECB’s deposit rate.

Austrian Central Bank Governor Holzmann is among the ECB’s most hawkish rate setters. Authorities are expected to raise borrowing costs by another half point next week, but what happens next is still uncertain.

The ECB will likely raise interest rates again after next week’s hike, but policymakers must adapt any action based on incoming data, Chief Economist Philip Lane said earlier on Monday.

Holzmann said the level of borrowing costs is still not restrictive and must be much higher to restrain economic growth.

“Even if we raise interest rates by 0.5 percentage points three times now, we would only have reached a 4% deposit rate,” he said. “Only then would we have entered roughly the restrictive space.”

Holzmann also said the ECB may consider adding more bonds to its quantitative tightening program to shrink its balance sheet more quickly.

*Not investment advice.