ECB's De Cos Hints At Further Rate Hikes Due To Elevated Core Inflation

• Core inflation in the Eurozone is likely to stay high for the rest of 2023, ECB policymaker Pablo Hernandez de Cos said on Monday, leaving the door open for further interest rate hikes.
• Data showed that inflation in the Eurozone dropped by the most on record in March, but growth in core prices accelerated. "Core inflation is expected to remain elevated for the rest of the year. That may delay convergence towards the 2% target in the medium term and that will therefore need close monitoring," De Cos, who also chairs Spain's central bank, told a financial event in Washington, D.C.
• Last year, the Eurozone’s core inflation averaged 3.9%, but it reached 5.7% in March, an all-time high. In mid-March, the ECB cut its inflation projections but figures still point to price growth above its 2% target for years to come.
• De Cos said that if the ECB's baseline scenario were to be confirmed "we still have ground to cover to make sure that inflation pressures are stamped out." The inflation path in the March staff projections was based on a risk-free forward curve that continued to point to expectations of further interest rate increases.
• On Monday, April 10, De Cos said that these projections were subject to uncertainty, which "means we are neither committed to a rise in rates further nor are we finished with hiking rates." The ECB has raised rates by a combined 350 basis points since July but did not provide specific guidance for its May 4 meeting, arguing that turbulence in the financial sector required extra caution. Although recent financial sector tensions have been contained so far, De Cos added that if they persisted or intensified, "a scenario could materialize of significantly tighter credit and financial conditions and worsening confidence, with downward effects on economic activity and prices."

(Source: Reuters)