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ECB isn’t done on rate hikes if baseline holds up: Kazaks


The European Central Bank (ECB) must fight inflation until the job is done, while acknowledging the rising risk of pushing interest rates too high as the peak nears, Governing Council member Martins Kazaks said.
Price pressures remain too strong and warrant further action — assuming the market turmoil that saw off Silicon Valley Bank and rocked Credit Suisse Group AG doesn’t worsen to derail Europe’s economy, Kazaks said Friday in an interview.
At the same time, after 350 basis points of hikes since July, officials must carefully weigh the implications of future moves, he said.
“Inflation is still very high — rates, in my view, needed to go up,” he said. “And if the baseline scenario holds and market volatility calms down and does not derail the scenario, then with the current macro outlook and the outlook for inflation, more interest-rate increases will be necessary.”
Still, “we’re getting closer to the situation where we very cautiously have to address both risks — of doing too much and doing too little — in terms of implications for the economy,” said Kazaks, the hawkish head of Latvia’s central bank.
Despite the global panic over banks, the ECB last week delivered the half-point rate increase it had been flagging since February. At the same time, the turbulence prompted policymakers to abandon their practice of signalling the path ahead for borrowing costs.
“Providing very clear guidance over multiple meetings currently is not only inappropriate, but also counterproductive,” Kazaks said. “But of course, forward guidance is as good an instrument as any, and if we will see it necessary and the environment is going to be appropriate, we may use it again.”
While the ECB’s new projections showed inflation, including a gauge that strips out energy and food, closer to the 2% target by 2025, Kazaks still sees risks skewed to the upside.

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