Financial markets predict ECB rates will top 3.3% by October

Three European Central Bank policymakers have restated the case for the ECB to raise interest rates further

Friday's statements underline the tussle among European Central Bank officials over how how far they should go in raising the cost of borrowing. File picture: iStock/Getty

A trio of hawkish European Central Bank policymakers came out in force on Friday to restate the case for hiking interest rates further, once financial-market volatility subsides.

In the wake of a 50 basis-point increase accompanied by no clear signal on future moves, governors from Estonia, Lithuania, and Slovakia suggested there still needs to be another phase of tightening after global turmoil fades.

Money markets are placing 50% odds on a quarter-point hike in May, with a full 25-basis-point increase priced by July and a 3.35% peak by October.

The remarks underscore how Thursday’s ECB rate decision, when president Christine Lagarde declined to provide an assessment of consumer-price risks, may only be a truce in the tussle between officials over how far to raise borrowing costs.

While the banking troubles began in the US but later rattled Credit Suisse have clouded the path ahead, those previously advocating prolonged rate increases aren’t abandoning those ambitions just yet.

“The future development of inflation over the entire horizon of our forecast period speaks clearly in favor of the need to continue,” Slovak National Bank chief Peter Kazimir said. 

His Lithuanian colleague, Gediminas Simkus, offered similar views. “Inflation trends haven’t disappeared,” he told reporters in Vilnius. 

While we must remain cautious regarding future assessment, I still believe this wasn’t the last interest-rate increase.

Madis Muller, governor of the Bank of Estonia, while insisting he wouldn’t want to make predictions in the current situation, highlighted investors’ sentiments. 

• Bloomberg