Two European Central Bank policymakers pushed back on Monday against market bets that the ECB will start cutting interest rates in the first half of next year and undo some of its recent efforts to fight high inflation.
The ECB ended an unprecedented streak of 10 consecutive rate hikes last week and investors are now pricing in some chance of a cut as early as April, despite President Christine Lagarde’s insistence that this is premature.
Slovak central bank governor Peter Kazimir and his Lithuanian peer Gediminas Simkus – two so-called hawks who favour tighter policy – sought to hammer home the message on Monday, even keeping further hikes on the table as an outside possibility.
“I would be surprised if we would need to lower rates during the first half of the next year,” Simkus told reporters in Vilnius.
Kazimir said bets on a rate cut in the first six months of the year were “entirely misplaced” and ECB policymakers would need to see the bank’s next macroeconomic projections in December and March.
“Only then will we be able to say the tightening cycle is completed and move on to the subsequent – monitoring – phase,” Kazimir said.
Inflation has been easing, with a state reading out of Germany on Monday confirming expectations for a substantial fall in October, and growth slowing amid signs of a credit crunch induced by surging interest rates.
The ECB last week left the rate it pays on bank deposits unchanged at a record high of 4% while it waits for its recent hikes to work their way through the economy.
“We will have to stay at the peak for the next few quarters,” Kazimir said.