[News] Latvian central bank governor forecasts another sharp ECB rate hike in September

[Deii]

Martins Kazaks says in Jackson Hole that Frankfurt should consider a hike of 75 basis points, more than the markets expect

 

 

A recession in the eurozone is very likely, but it will not be enough to bring down inflation, which will force a sharp rise in rates in September, even stronger than the markets estimate. This has been indicated by the Governor of the Latvian Central Bank (and, as such, part of the Governing Council of the European Central Bank), Martins Kazaks. "Raising rates early is a reasonable policy choice," he said in an interview with Reuters at the summit held by major central banks in Jackson Hole, Wyoming, USA. "We should be open to considering increases of between 50 and 75 basis points."

 

In July, the ECB raised rates by 50 basis points (the biggest hike in 22 years) to zero and markets were expecting a similar move at the next meeting on September 8, but deteriorating inflation data they do consider a more drastic move. In Latvia, prices in July registered an increase of 21.5% compared to the same month in 2021. In the eurozone as a whole, the registered inflation figure of 8.9% is four times higher than the ECB target, and, more troublingly, the underlying data (which excludes volatile factors like food and energy prices) is also high.

 

Kazaks has stated that "avoiding a recession is going to be very difficult" in these conditions of inflation. "This is what we take for granted in Latvia," he said. Under these conditions, the ECB has to abandon its stimulus policy in the first quarter of 2023, in principle to reach a situation of neutrality, in which the central bank neither slows down nor stimulates the economy. "But if we see that we have to go beyond neutrality, I have no doubt that we will go," he said. “If we don't see a significant decline in core inflation, we will have to. But let's not get ahead of ourselves."

 

https://elpais.com/economia/2022-08-27/el-gobernador-del-banco-central-leton-pronostica-otra-fuerte-subida-de-tipos-del-bce-en-septiembre.html