The ECB is heading to a critical meeting in July with a rate rise expected and investors awaiting details of its new fragmentation tool.
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A member of the European Central Bank told CNBC Wednesday that there’s plenty of runway to hike interest rates, following the two planned raises for July and September.
All eyes are on the ECB with a critical meeting next month. The euro zone’s central bank has said it will be raising interest rates for the first time in 11 years, but investors are more interested on whether President Christine Lagarde’s team will be able to further tighten monetary policy over the medium term.
The ECB has said there will be another hike in September, but doubts currently rest on the period after that — given that the economic prospects of the bloc are darkening. Raising interest rates could slow down economic growth further.
“We will have to make an assessment where the economic development is going and where inflation stands and afterwards there’s ample room to hike in 0.25 and 0.5 levels to whatever rate we think, we consider reasonable,” Robert Holzmann, who’s also the governor of the Austrian central bank, told CNBC about the period after September.
At the moment, the central bank has to somehow manage record levels of inflation and a worsening economic outlook. The ECB forecast in June a 2.8% growth rate for the euro zone this year, but there are growing concerns that this will not materialize, with the war in Ukraine adding continuous economic pressure on the bloc.
The ECB’s Chief Economist Philip Lane has already stressed that the ECB has to manage two major risks at the moment.
“On the one side, that could be forces that keep inflation higher than expected for longer. On the other side, we do have the risk of a slowdown in the economy, which would reduce inflationary pressure,” he told CNBC Tuesday.
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