ECB entering final stretch of interest rate hikes, says official

THE European Central Bank (ECB) is “entering the final stretch” of its tightening cycle, indicated vice-president Luis de Guindos.

When exactly the ECB halts its series of interest-rate increase “will depend on the data” Guindos said in an interview with Spanish newspaper ABC published on Sunday (Jun 25). “What happens with core inflation is very important.”

The ECB has already raised borrowing costs by 400 basis points since last July, with another move next month all but certain. What happens after that is less clear, with some policymakers warning that more may be needed after the summer break.

Guindos also told ABC:

• Monetary policy put in place by the ECB and base effects “will help” decelerate core inflation
• It is important to “watch second-round effects – everything that has to do with salary increases and the evolution of unit labour costs”
• If the second-round effect scenario gets complicated, “monetary policy will have to act with more strength”
• Fiscal policy must also play a role to lower inflation

BLOOMBERG