The Dutch central banker and member of the Board expressed the view that the European Central Bank must immediately tighten its monetary policy, possibly even front-loading because inflation may move even higher. of the Bank Klaas Not.
“Rapid normalization of interest rates is an essential first move, while some forward-looking hike should not be ruled out,” Knott said in a speech today.
As he underlined, “the expansion and consolidation of the inflation problem gives rise to the need to act dynamically”.
Inflation, running at 8.9%, is already more than four times the ECB’s target of 2% and could top 10% in the coming months as businesses and households begin to doubt the ECB’s willingness or ability to control prices.
Klaus Knott confirmed that there are upside risks to inflation, including rising food and energy prices, a weakening euro, large fiscal spending and rising inflation expectations.
A recession in Europe, seen as increasingly likely given the loss of Russian natural gas supplies, would ease pressure on prices, with the Dutch central banker arguing that alone would not be enough.
“Even if this deceleration materializes, it alone is unlikely to bring inflation back to our target over the medium term,” he said.
While it is uncertain where rate hikes should end, Klaus Knott argued that the ECB should simply keep raising rates until the outlook for inflation aligns with the ECB’s target.
Finally, as part of its policy normalization, Klaus Knott said the ECB should also consider shrinking its balance sheet, after buying trillions of euros worth of bonds over the past decade.
Source: Capital

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