The European Central Bank (ECB) will also have to raise interest rates in the eurozone in June and July to bring the high inflation under control. Inflation is proving to be more stubborn than expected, emphasizes Klaas Knot, President of De Nederlandsche Bank (DNB), in an interview with four major European newspapers.
Once the hikes peak, interest rates will have to stay at that level for a “long period,” Knot says. Corriere della Sera, Les Echos, Handelsblatt and El Mundo. The DNB president is also a director at the ECB.
Earlier this month, the ECB raised interest rates by another 25 basis points. ECB President Christine Lagarde has said the bank is not done raising rates just yet.
Financial markets are taking these announced increases into account. Therefore, according to Knot, the ECB must also “deliver” in June and July. The DNB president is known within the ECB as a supporter of aggressive rate hikes to tackle inflation.
Since last year, the central bank has been trying to bring inflation down by raising interest rates. That makes borrowing money more expensive. That, in combination with the fact that saving yields more at a higher interest rate, means that people spend less money. As a result, the economy cools down and prices will rise less rapidly. Knot states that the most impact of the interest rate hikes has yet to become visible.
Earlier this month, DNB board member Olaf Sleijpen said at a briefing in the House of Representatives that the inflation picture is still “worrying”. As long as core inflation (which excludes food and energy, among other things) remains too high, he believes the ECB must take further steps.