ECB to hike rates by 0.5% in February and March

“We focus on core inflation where, unfortunately, there is no good news,” said ECB governing council member Klaas Knot. "Because it is still on the rise. Underlying inflationary pressures show no signs of abating yet."

The European Central Bank increased rates four times last year. Picture: Hannelore Foerster/Bloomberg via Getty Images.

The European Central Bank (ECB) is set to raise interest rates by 50 basis points in both February and March and will continue to raise rates in the months after, ECB governing council member Klaas Knot said in an interview.

"Expect us to raise rates by 0.5% in February and March and expect us to not be done by then and that more steps will follow in May and June," said Mr Knot.

In a separate interview with Italian newspaper La Stampa, Mr Knot said it was "too early to tell" if the ECB could slow down the pace of its rate increases by the summer.

"At some point, of course, the risks surrounding the inflation outlook will become more balanced," he said.

That would also be a time in which we could make a further step down from 50 to 25 basis points, for instance. But we are still far away from that.”

Officials in 2022 raised the deposit rate by 250 basis points to 2% and economists in a Bloomberg survey see them peaking at 3.25% by summer. 

Still, some officials consider slowing the pace of tightening as price pressures ease and energy costs drop, according to people familiar with the matter.

“In the December data, we saw a first decline in headline inflation, but that was entirely due to base effects and lower energy inflation,” said Mr Knot.

“We focus on core inflation where, unfortunately, there is no good news. Because it is still on the rise. Underlying inflationary pressures show no signs of abating yet.”

He is not alone in his pushback against taking the foot off the gas too quickly. 

ECB president Christine Lagarde told the World Economic Forum in Davos that policymakers would “stay the course” and the central bank chiefs of Austria and Finland made a similar case in recent days.

The regulator increased rates four times last year. There are around 300,000 Irish households on tracker mortgages who are immediately affected because their monthly payments automatically rise when the ECB moves its official rates higher.

Meanwhile, the US regulator, the Federal Reserve, is poised to slow the pace interest-rate hikes for a second straight meeting.

Reporting by Reuters, Bloomberg and the Irish Examiner