ECB's Philip Lane says further interest rate hikes on the way

Chief economist acknowledged need for more increases after a half-point move pencilled in for March 16, but warned against policy on 'autopilot'

ECB chief economist Philip Lane: "The current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting" File picture: Sam Boal

ECB chief economist Philip Lane has said more interest rate increases are to come as the bank sees battlelines drawn over whether to further tighten policy or be cautious.

Mr Lane on Monday acknowledged the need for more increases after a half-point move pencilled in for March 16, but warned against policy on “autopilot". 

Portuguese central bank chief Mario Centeno highlighted that inflation is even undershooting ECB forecasts. He said colleagues should note that headline price growth has slowed compared with their December projections and that officials "should not rush to conclusions". 

Meanwhile, Austria’s central bank governor, Robert Holzmann, possibly the most hawkish policymaker, shook bond markets by speculating that next week’s move will be just the first of four in 50 basis-point increments.

That followed remarks by Belgian colleague Pierre Wunsch on Friday that investor bets for a 4% rate peak — still 150 basis points away — may prove accurate.

Those declarations show how officials are seeking to steer a debate already focused on future meetings in the final hours before a blackout period takes effect a week in advance of next Thursday’s decision.

Underscoring an outcome already long-signalled, ECB president Christine Lagarde appeared to strengthen her language on Sunday to state that a half-point increase then is now “very, very likely".

The flurry of comments followed last week’s data, which showed core inflation — stripping out volatile elements such as food and energy — is now at 5.6%, the fastest pace in eurozone history.

“The current information on underlying inflation pressures suggests that it will be appropriate to raise rates further beyond our March meeting,” Mr Lane said in Dublin, in a speech that focused on the mixed messages to be found in underlying inflation gauges. 

“Exactly what we do in May will be very data dependent.” 

That acknowledgment of the need for more tightening came with a warning that officials shouldn’t be on “autopilot", that there will be a host of reports and surveys to inform them before the May decision, and that they should assess “the impact of the cumulative tightening” already in place.

Bloomberg