"ECB May Raise Key Interest Rate Above 3.5%... No Cut Expected This Year"

[Asia Economy Reporter Haeyoung Kwon] A member of the European Central Bank (ECB) has stated that the ECB could raise its key interest rate beyond the market expectation of 3.5%. The possibility of a rate cut within this year was also dismissed.

Gabriel Makhlouf, ECB policy member and Governor of the Central Bank of Ireland, said in an interview with the Wall Street Journal (WSJ) on the 14th (local time), "The interest rate could be higher than 3.5%," adding, "We are prepared to take any strong action necessary to bring inflation down to the target."

Previously, the ECB raised the key interest rate by 0.5 percentage points to 2.5% this month and has signaled an additional 0.5 percentage point hike in March. The market expected the ECB to raise the rate once more in July to reach 3.5%, then cut rates by the end of the year or early next year. Makhlouf’s remarks dampened these market expectations.

He also drew a line against forecasts that the ECB would cut rates by the end of the year due to slowing inflation. He explained, "(The expectation of a rate cut within this year) is too far ahead," adding, "We will stabilize after reaching the point we want to get to." He further stated, "Interest rates affect the economy with an 18-month lag," and "We will decide on rates at each meeting as new data arrives."

Makhlouf is regarded as a centrist between the 'hawks' and 'doves' within the ECB. Although he does not represent the ECB’s official stance, WSJ noted that his comments are noteworthy for this reason.

Europe’s inflation rate slowed to 8.5% in January. However, it remains significantly higher than the ECB’s target of 2%, indicating a long road ahead.

Makhlouf said, "I expect the ECB to raise rates after the March meeting," explaining, "Because inflation is slowing but still above our target."

He also expressed concern that inflation could worsen over the next decade compared to the pre-COVID-19 pandemic period. Supply chain uncertainties involving goods and labor could exert upward pressure on inflation.

He emphasized, "I would be surprised if we return to negative interest rates," adding, "The goal is not to reduce inflation by 2%, but to bring it down to 2%."

This content was produced with the assistance of AI translation services.