The ECB could start raising the rate in early 2023: Klaas Knot

The European Central Bank (ECB) will be poised for an interest rate hike in early 2023, after finalizing the remaining bond purchases at the end of next year, Governing Council member Klaas Knot said, according to the Bloomberg agency citing an interview with the Dutch newspaper Trouw.

“All the changes are on track to end with the remaining bond purchases by the end of next year, and when they do, the policy rate may go up, which is expected in early 2023,” he said.

When asked if his colleagues in Frankfurt had a similar time frame in mind, Knot said that “we will have to see, but I think so. Much will depend on how the economy develops next year. “

Earlier this month, the ECB confirmed that it would close its Pandemic Bond Purchase Program (PEPP) from March 2022, while temporarily boosting its conventional asset purchase program (APP). .

Until now, the European body bought 20,000 million euros per month under this program, but between April and June it will raise purchases to 40,000 million. Looking to the third quarter of 2022, purchases will be 30,000 million and from October purchases will return to 20,000 million euros per month.

Although several authorities opposed the ECB’s decision to extend the stimulus, Knot, a frequent critic of expansionary monetary policy in the past, said he was “comfortable” with the plan to phase out bond purchases in 2022.

But he also cautioned against complacency, arguing that if inflation turns out to be higher than expected, the ECB may need to undo support measures more quickly.

“If we want a smooth and gradual exit, it is even more important that we start early,” he said. “The last thing you want in a situation like this is to be left behind. Once it lags behind, it takes an abrupt and powerful correction to get ahead. “

Inflation

Inflation in the euro zone could exceed current ECB forecasts for the next few years, Knot said. The ECB this month projected inflation in the union to fall to 1.8% after 2022 from 4.9% today, but the official said that could be too promising.

“I have a different opinion, I think that the possibility that we remain stagnant above 2% is just as great. Not much above 2%, but still ”.