ECB Governing Council member and head of Slovakia’s central bank, Peter Kazimir, indicated in an opinion piece that the possibility of further rate hikes remains on the table. Also, it’s premature to bet on the timing of the first rate cut.

Kazimir emphasized that the forthcoming March forecast will be a decisive factor in ascertaining whether the inflation target is within reachable limits, stating, “Only the March forecast can confirm that we are heading unequivocally and steadily towards our inflation goal.”

“That is why I cannot rule out the possibility of further rate increases today,: he added.

Elaborating on the current stance of the policy rates, Kazimir metaphorically commented, “Assume we’re at the top. If so, we may have to stay camping here for quite some time and spend the winter, spring, and summer here.”

Hence, it would be “premature to place market bets on when the first interest rate cuts will occur.”

Meanwhile, he did leave the door open for potential adjustments in the bank’s quantitative tightening measures, contingent on economic data. He noted, “As soon as incoming economic data and analyses confirm that further tightening is unnecessary, I see room for a debate about adjusting the pace of our quantitative tightening.”

In an interview over the weekend, ECB Governing Council member Martins Kazaks, chief of Latvia’s central bank, sought to temper market expectations regarding rate cuts. He emphasized that any anticipations of rate cuts in the spring or early summer are “not really consistent with the macro scenario” that is currently envisioned.

Kazaks underscored his contentment with the present rate levels, expressing that they stand aptly. He clarified, “While I’m comfortable with where rates are at the moment, if necessary we will take the right decisions.” However, he declined to affirm the notion that the rates have reached their peak, thus leaving room for more tightening based on future economic developments.

Stressing the urgency to effectively address the inflation issues in a decisive manner, he said, “I would like to see that we solve inflation in one attempt, that we are not forced to come back,” to avoid a scenario necessitating “larger interventions” down the line.

Separately, another Governing Council member Yannis Stournaras, Greek central bank head, said, “I would have preferred to hold rates last week. But there were arguments in favor of both outcomes — hiking and holding — so I’m fine with the decision we took.”

Last Thursday saw ECB raising the interest rates by 25bps, marking the tenth consecutive hike, thereby elevating deposit rate to a record 4%. Additionally, ECB signaled interest rates have probably peaked in the currency cycle.

In a chorus of comments, ECB officias pushed back on market expectations on a rate cut next year.

During a press conference today, ECB President Christine Lagarde emphasized, “We have not decided, discussed or even pronounced cuts.” She underlined that the institution’s strategy will pivot according to incoming economic data and highlighted that the levels and duration of the existing high rates are designed to foster a return to the inflation target of 2%. The focus is on evolving economic indicators, reviewed in a meeting-by-meeting approach, hinting at the bank’s readiness to adapt in the face of changing economic contexts.

Supporting Lagarde’s stance, ECB Vice President Luis de Guindos conveyed skepticism regarding market pricing that forecast a rate cut in June 2024. Speaking to Spanish radio station Cadena Cope, de Guindos mentioned that the markets often rely on speculative “hypotheses that sometimes do not come true.” He viewed such forecasts as gambles, affirming that they might not materialize. “It is a bet, it may be right and it may not be right,” De Guindos added, underlining the uncertain nature of market forecasts.

Martins Kazaks, a member of ECB’s Governing Council, expressed comfort with the current rate levels, showing optimism regarding achieving the 2% inflation goal by the second half of 2025. He maintained that the bank remains open to the possibility of another rate increase if substantiated by forthcoming data.

Kazaks was assertive in dismissing speculations about a rate cut in April, stating such conjectures are “inconsistent with our macro scenario.” He reiterated the bank’s firm stance to “stay in restrictive territory for as long as necessary to get inflation to 2%.”

ECB delivers a dovish 25bps rate hike today. The accompany statement indicated that the current tightening cycle could have reached its peak already. Also, core inflation and growth forecasts for 2024 and 2025 were revised down.

The newly set rates are as follows: main refinancing operations rate at 4.50%, marginal lending facility rate at 4.75%, and deposit facility rate at 4.00%.

ECB President cited the persistent nature of inflation being “too high for too long” as the primary motivator behind this strategy to “reinforce progress” in ushering inflation back to the target in a “timely manner”.

ECB added, “the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”. Future decisions will “ensure” that the interest ares are set at “sufficiently restrictive levels for as long as necessary.

In the new economic projections, inflation is forecast to be at 5.6% in 2023 (prior projection at 5.1%), 3.2% in 2024 (prior 3.0%) and 2.1% in 2025 (prior 2.3%).  The upward revision for 2023 and 2024 mainly reflects a higher path for energy prices.

Core inflation is projected to average 5.1% in 2023 (unchanged), 2.9% in 2024 (prior 3.0%), and 2.2% in 2025 (prior 2.3%).

Growth is projected to be at 0.7% in 2023 (prior 0.9%), 1.0% in 2024 (prior 1.5%), and 1.5% in 2025 (prior 1.6%).

Full ECB statement here.