Inflationary pressure has not abated, two ECB officials say interest rate hikes may be needed in December

The Zhitong Finance App learned that two ECB officials made successive statements on Tuesday, strengthening the market's expectations for the December interest rate hike. Management Committee member Kazax said that current conditions may make the December interest rate hike necessary; chief economist Ryan said that inflation has not peaked, and the December rate hike is a prudent move.

Kazax: The December rate hike may be necessary, but the policy trade-off is more delicate

Kazax said that current conditions may make a December interest rate hike necessary, but at the same time he warned that the judgment on tightening policies is becoming more and more delicate.

“The future trade-offs will become more delicate, because at the end of the day, we must meet our inflation targets, but not at the cost of damaging the economy too much.” Kazax said, “From today's perspective, it seems necessary to further tighten the policy.”

The market still expects at least two more 25 basis point rate hikes. Kazax believes that interest rates are at the upper limit of the neutral range for the economy, but he refuses to speculate on how much policy tightening is needed.

“Let's see what the data brings.” He said, “We have also seen some correction in the stock market, which may further slow growth. We are also seeing a rise in government bond yields, which may also slow some economic growth.”

Despite this, he pointed out that current consumer price risks are still clearly visible. Therefore, monetary policy should be “hawkish.”

“Inflation is 4% and above; of course, there is a risk that inflation expectations will be boosted.” He said, “If necessary, I don't think we should be afraid to raise interest rates cautiously.”

Ryan: Inflation hasn't peaked yet; raising interest rates in December is a prudent move

Earlier the same day, Lane said that policymakers should raise interest rates at the next meeting in December, and indicated that inflation had not peaked.

Lane said that oil prices “may fluctuate greatly” from now until December, but the inflation rate is likely to be “slightly above 4%” by the end of the year, and food and core prices may rise at an accelerated pace, especially in the first quarter of next year.

“If the information we have in December is exactly the same as today, then I think raising interest rates is indeed a prudent move.” “The peak of inflation is yet to come,” he said in London on Tuesday.

The ECB is evaluating how much more effort is needed to curb inflation. The current inflation rate is double the 2% target. Since the US attacked Iran in February, the ECB has raised deposit interest rates twice. Officials have sent a signal that they are willing to raise interest rates again in December. However, the drop in oil prices after the US midterm elections may temporarily curb price increases.

Investors believe that interest rate hikes in December are more likely and expect further tightening in 2027. Lane said the ECB will “follow the data” next year and urged traders not to just focus on commodities to find direction.

“I would like to see the market repricing, not only in line with energy prices, but also with broader macroeconomic developments.” he said.

Lane said that the European economy is currently growing steadily at a moderate pace, and its resilience so far is “quite reassuring.” “We should work to improve the growth rate of the European economy through reforms.” he added.

Lane's eight-year term ends in May 2027, and France intends to nominate a candidate to take over the position. The arrangement will be part of a personnel package involving President Christine Lagarde and executive board member Isabelle Schnabel — both of whom will leave early in early 2027.