Belgium, (Brussels Morning Newspaper) Bank of Portugal Governor Mário Centeno called on the European Central Bank (ECB) to slow down rate hikes.
The ECB should also send a clear message that the latest two rate hikes of 75 basis points are not the norm, Centeno stressed in an interview with Reuters released on Wednesday.
In an effort to rein in rising inflation, the ECB upped rates a combined 200 basis points since July and pushed up the deposit rate to 1.5%.
“We are nearing rate levels that we consider compatible with price stability in the medium term, which means that the idea that 75-basis-point hikes are the norm cannot materialise,” Centeno pointed out.
He stressed the importance of ending the series of rate hikes in a credible manner and added that the ECB should be clear about its rate hike plans.
Centeno did not want to predict how much the EBC would up rates in December or whether additional hikes would be implemented in 2023.
Inflation to peak this year
Inflation in the eurozone exceeded 10% in October, in contrast with the ECB’s target of 2%. According to Centeno, inflation is not entrenched in the EU and will peak this year.
Noting that inflation does not appear to be affected by wage increases, he pointed out “this is frankly positive and very different from what happened in the US, where the labour market from this point of view is rather overheated.”
Centeno added that the EU and the US are structurally different, which is why interest rates in the bloc should be approximately twice lower compared to the US.
Answering to the interviewer who asked whether the market accurately estimated the maximum rate in the EU of 3%, Centeno noted that he expects “the December [ECB] meeting to be very constructive and useful for the most correct identification of this ceiling.”
Commenting on ECB’s plans to reduce its balance sheet after a years-long bond purchasing spree, he pointed out that the process would be slow and gradual.
Centeno concluded that the reduction is necessary to complement other monetary policies aimed at reining in inflation, but must be done carefully so as not to jeopardise financial stability.