FRANKFURT, June 6 (Reuters) – Underlying worth pressures within the euro zone might show harder to tame however financial coverage is exhibiting indicators of effectiveness and additional charge hikes have to be carried out step-by-step, Dutch central financial institution chief Klaas Knot mentioned on Tuesday.
The ECB has raised charges by a mixed 375 foundation factors over the previous yr to fight runaway inflation, and a minimum of one other two extra hikes are anticipated by traders, however the finish of the quickest tightening cycle within the financial institution’s quarter century historical past is nearing its finish.
“As a result of inflation was excessive for a protracted interval, underlying inflationary pressures have constructed up,” Knot mentioned in a speech. “It’s seemingly that worth pressures in these areas will show harder to carry down.”
Underlying inflation, which filters our gas and meals costs, ticked down to five.3% final month from 5.6%, however ECB chief Christine Lagarde warned on Monday that there was no clear proof that core worth progress has peaked.
Nonetheless, Knot expressed some cautious optimism, arguing that the worst of Europe’s inflation issues are over, long term expectations are nonetheless “decently” anchored and there’s rising proof that ECB coverage is working.
“It’s reassuring to see the primary indicators of current financial coverage really being transmitted to the true economic system,” Knot, an outspoken coverage hawk, mentioned.
Borrowing prices for corporations and households are rising whereas macro indicators, such because the drop in home costs, are additionally exhibiting the impression of coverage.
“These are solely the primary, concrete steps within the transmission of our financial coverage tightening,” Knot mentioned. “And we’ve got but to see their full impact.”
Though Knot didn’t repeat his name for charge hikes in June and July, he mentioned the ECB would proceed to boost charges till it noticed inflation returning to 2% over the medium time period.
However additional steps must be cautious as a result of the upper charges go, the extra forceful their impression might be provided that earlier strikes have but to indicate their full impact.
The ECB additionally wanted to thoughts stability concerns as a result of the monetary system wanted to regulate to larger charges, Knot added.
Reporting by Balazs Koranyi; Modifying by Andrew Heavens
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