Faced with inflation, central bankers "very worried"

Faced with inflation, central bankers “very worried”

He is one of the essential “hawks” of the European Central Bank. With his counterparts from the German, Finnish and Austrian central banks, Klaas Knot, the governor of that of the Netherlands (DNB) has always been among those who have fought against negative interest rates and a monetary policy deemed too lax.

After having been in the minority for a long time, he is now going in the direction of history. With the great return of inflation, the European Central Bank (ECB) announced on Thursday 9 June that it was going to raise its interest rate twice, in July and September. In an interview at WorldMr. Knot believes that we must go as quickly as possible.

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In July, as the ECB already announced, its deposit rate, currently -0.5%, will increase by 0.25 points. But, in September, she allows herself some flexibility, and Mr. Knot wants to speed up. “If conditions remain the same as today, we will have to raise the rate by more than 0.25 points. The next level is to boost by 0.5 points, but our options are not necessarily limited to that. » Would he consider 0.75 points at once? “All I can say is that the upside will have to be more than 0.25 points. »

“The eurozone economy will clearly suffer”

Then the ECB will have two more meetings before the end of the year, in October and December, and Mr. Knot intends to use them to continue raising rates. “It all depends on the data and the economic situation, but there is a real probability that the rates will continue to rise in October and December. » This should therefore result in an ECB rate of 0.75%, or even 1%. A level that has not been reached since January 2011. Is this his wish? “This is what the financial markets are currently predicting”, he just replies. He does not say it openly, but he then intends to continue raising rates in 2023. The markets are pricing in a rate of 1.5% in the first half and Mr. Knot seems comfortable with this idea.

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For the Dutch central banker, it is urgent to act. Inflation reached 8.1% in the euro zone in May, and the spiral must be halted. “We are very worried about inflation. » Mr. Knot acknowledges that most of the price increase comes from the energy surge, caused, first, by the exit from the pandemic, then by the war in Ukraine, as much as phenomena on which the rates of interest can’t do much.

But the phenomenon, initially considered as transitory by the ECB, is in the process of spreading to the entire economy. “We are particularly concerned that inflation is spreading across the entire consumer basket. Now, 75% of the prices we measure increase by more than 2%. Core inflation [hors énergie et alimentaire] is now 3.8%, which is double our inflation target [de 2 %]. »

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