Two policymakers said on Friday that the European Central Bank is likely to raise interest rates again in May. This comes after a rate hike was already announced for March. One of the policymakers said that the peak or “terminal” rate is at least starting to come into view.
The ECB raised rates by a half of a percentage point to 2.5% on Thursday and said they would do the same thing in March. However, they left the door open for more steps, which made investors doubt that the ECB was serious about keeping rates high to control inflation.
But Peter Kazimir of Slovakia and Gediminas Imkus of Lithuania said that policy tightening wouldn’t stop in March because inflation was still far too high, even though it had recently gotten better.
Kazimir said in a statement that the price hike in March would not be the last. “We will decide later on how many more we need.”
Simkus said that the increase in May could be either 25 basis points or 50 basis points, but it was unlikely to be 75 basis points.
Neither Simkus nor Draghi would say when rate hikes might stop, but Simkus did say that the ECB might be getting close to its peak.
Related: The ECB will keep raising rates in the coming months, Dutch Governor Knot says.
“I think inflation is going in the right direction,” Simkus said. “I think we’re already getting close to that rate,” he said.
The market price for the end rate is currently 3.35 percent, which suggests that some investors see only a 25-bp move after the move that was already expected in March, while others see a 50-bp move.
Both Kazimir and Simkus disagreed with the idea that rates could be cut by the end of the year, which is what the markets are predicting right now.
But Simkus said that a cut could happen in 2024 if inflation trends change and the trend toward less inflation becomes more important.
