Resolute hike is necessary for ECB, according to Martins Kazaks

Martins Kazaks, the ECB Governing Council member, said that resolute measures are required from the European Central Bank to curb the inflation, and the main action must be an interest rate hike of at least 0.5%.

During an interview at the Jackson Hole Annual Economic Symposium, Kazaks called the front-loaded hikes reasonable, as there is a 10% increase in prices, but he stated the necessity of the well-ordered pace of monetary support removing. The process, according to him, might be initiated with discussing of quantitative tightening, or reducing the ECB’s balance sheet. At the same time, he noted that there is no urgent need to do it at the moment.

As Kazaks said, the good news is that the inflation expectations are still at the levels they need to be, although the side effects are getting more and more significant, which requires a resolute and bold response.

Kazaks stated the required volume of the interest rate increase has to be at least of 50 basis points. The actual level of the rate hike will be affected by the updated information on inflation in August, which will be announced on Wednesday, as well as by a new forecast by the ECB.

Kazaks also talked about the growing determination of the ECB council members to perform all the necessary actions. The main example of this determination was the rate increase of 0.5%, which was made in June and exceeded the expectations. Kazaks suggests that the rates might achieve the levels that would neither support nor slow down the economy, although the rates might be moved to restricting levels if needed.

The weakening euro supposed to be another crucial issue. Kazack expressed his dissatisfaction with the change taken place in the exchange rates, as it incentivizes the inflation, while the supply difficulties prevent European companies to gain more profits from export getting cheaper. 

The inflation peak is expected to be reached this year, according to Kazaks. He emphasized that it doesn’t mean that prices go down, though, as slowing inflation doesn’t necessary leads to goods getting cheaper.

The further important issue for the ECD is the necessity to decide how to reduce the bonds of trillions of euros, which were purchased to support the economy during the latest crisis. According to Kazaks, this question has to be raised as soon as possible, although it doesn’t mean that any measures have to be taken in the nearest future. At the moment, the main objective for the ECB is still taking the optimal decision on the interest rates.