UPDATED: ECB to keep raising rates, though most of tightening is done, De Guindos says

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MADRID, May 18 (Reuters) – The European Central Bank will have to keep raising interest further to bring inflation back to its mid-term goal of 2% though most of the tightening has already been done, ECB’s Vice President Luis de Guindos said on Thursday.

The ECB slowed the pace of its interest rate increases earlier this month with a 25-basis-point raise but signalled more tightening was coming.

“A significant part of the journey has been made, there is still some way to go, probably the road ahead is shorter, but I don’t know what the end point is going to be,” De Guindos said.

Markets expect a fresh, 25-basis-point increase at the ECB’s June meeting and possibly one more by the end of the summer, followed by rate cuts starting early next year.

De Guindos said he was still concerned about the evolution of core inflation, “which is especially worrying in the case of services.”

Euro zone inflation accelerated last month to 7.0% from 6.9% in March, confirming preliminary data pointing to increasingly stubborn price growth among the 20 nations sharing the euro.

Rising services and energy costs offset a slowdown in food price growth.

Although underlying price growth, the key focus of European Central Bank policymakers in recent months, slowed a touch, the crucial services component continued to accelerate.

“Services are driving (growth) much more than manufacturing in Europe, that is why Spain and Italy are growing more than Germany,” he said.

De Guindos also said that the euro zone was poised to grow at a more moderated pace of around 1% in 2023, in line with the forecast earlier this week from the European Commission, though the “positive part is that a technical recession has been avoided.”

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