(Bloomberg) — The European Central Bank can afford to reduce the pace of interest rate hikes after two 75 basis point increases, according to Governing Council member Mario Centeno.
The head of Portugal’s central bank said he saw room for borrowing costs to rise further, adding that “I think there are conditions in place – many conditions – for the increase be less than this number” during the decision of December 15.
The ECB has already raised rates by 200 basis points since July and is expected to move further at its next meeting. Markets are currently pricing a half-point upside and people familiar with the matter said last week that there is currently no momentum for a bigger move.
Still, Austrian central banker Robert Holzmann said on Monday he would support a 75 basis point step, if the next inflation data through November 30 does not show a major slowdown in price growth. ECB chief economist Philip Lane signaled that the question would in due course arise whether to start tightening in “slower increments”.
All policy makers agree that the ECB must continue to fight against record inflation.
“We need to reverse this inflationary trend so that we can have more predictability in monetary policy over the next few months,” Centeno, who is among the most dovish officials, told an event in Lisbon. Monday.
The ECB is also expected to set out the key principles that will apply to the so-called quantitative tightening process at its December meeting, with the actual reduction in its balance sheet not expected to start until next year.
“We have a wide range of instruments at the ECB,” Centeno said. “The interest rate instrument is the preferred instrument for fighting inflation. When inflation peaks and its path becomes predictable, other instruments can be used. We need to reduce the size of our balance sheet.
(Updates with QT in last paragraph)
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