Policy rate can start increasing in early 2023, says ECB Governing Council member

[FRANKFURT] The European Central Bank (ECB) will be ready for an interest rate hike in early 2023 after ending the remaining bond purchases by the end of next year, Governing Council member Klaas Knot said.

"All switches are on track to end the remaining bond buying by the end of next year - and when that's done, the policy rate can go up early 2023," he told Dutch Trouw newspaper in an interview published on Thursday (Dec 30). Asked if his colleagues in Frankfurt have a similar time frame in mind, Knot said: "We'll have to see, but I do think so. A lot will depend on how the economy will develop next year, a year is long."

Earlier this month, the ECB confirmed that it would wind down its pandemic bond-buying programme but temporarily expand an older quantitative easing program to cushion the transition.

Other major central banks are tightening monetary policy more quickly. The Federal Reserve has doubled the pace of its stimulus exit, and the Bank of England earlier this month delivered a surprise rate hike - the first among major central banks since the pandemic struck - citing "more persistent" inflation.

The Omicron coronavirus variant is likely to have little influence on prices next year for the time being, Knot said, but if the impact is bigger, he believes the ECB is ready to change its policy faster than currently planned.

The chief of the Dutch central bank said he sees the risks of persistent inflation slightly stronger than the Frankfurt-based monetary authority. Several policymakers cast doubt on the likelihood of inflation slowing to exactly 1.8 per cent in 2023 and 2024 as the ECB forecasts.

BLOOMBERG