European Central Bank Governing Council member Klaas Knot said market expectations of an interest-rate increase “later this year” are “quite realistic,” according to an interview with Les Echos.
While citing an “uncertain environment,” Knot said the ECB would review at the end of the summer how the war in Ukraine is affecting the medium-term inflation outlook and decide whether a higher ECB policy rate is “appropriate.”
The ECB is trailing other major central banks in raising interest rates. Hikes by the Federal Reserve and the Bank of England are already underway. Knot said Thursday he wouldnt rule out two rate hikes this year if inflation forecasts shift higher.
Knot, who also heads the Dutch central bank, defended the wind-down of monetary stimulus announced last week by ECB President Christine Lagarde, saying that inflation is “converging toward a 2% target in the medium term.”
That means “theres no longer a reason to maintain such a high level of monetary stimulus via the asset purchase program and negative policy rates,” he said.
The war in Ukraine doesn‘t mean “we are already facing a stagnation of the economy or even a recession,” Knot said. Government spending on defense, renewable energy, refugees and measures to compensate for consumers’ loss of purchasing power will cushion the negative impact on growth, he told Les Echos.
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