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Sun, 06 Feb, 2022 - 15:27

ToSterling and Bart H. Meijer

Klaas Knot, the Dutch central bank president and a member of the European Central Bank's governing council, has said he expects the ECB to raise interest rates in the fourth quarter of this year.

In an interview on Dutch television, Mr Knot, known as one of the more hawkish members of the ECB's board, said he supported winding down the eurozone central bank's asset purchasing programme as quickly as possible.

"Personally, I expect our first rate increase to take place around the fourth quarter of this year.

"Normally, we would raise rates by a quarter percentage point, I have no reason to expect we would take a different step."

He added that he thought a second hike would likely follow in early 2023.

Mr Knot's remarks come after ECB president Christine Lagarde on Thursday opened the door to an interest rate increase in 2022 but said it was "unlikely".

The bank must first end its asset purchasing programmes, currently set to be wound down in steps to €20bn per month by the fourth quarter.

However, since Thursday, bond markets have begun pricing in around 40 basis points of rate hikes by December.

The first two rate increases will follow each other quite quickly, as they will take us out of negative territory.

"After that, if we don't see a wage price spiral and inflation expectations remain anchored around our 2% target, there is not much reason for us to increase rates significantly and quickly,” said Mr Knot.

Mr Knot said that inflation in the eurozone, at 5.1% in January, was too high, and will probably last into 2023 before receding — assuming there is no further unexpected increase in energy prices.

"It [inflation] might very well be significantly higher than what we had expected over the course of the year and possibly higher than we had anticipated at the end of the year. So risk is to the upside, in particular in the near term," said ECB chief Christine Lagarde on Thursday.

It would be logical for the ECB to hike its key interest rate at the latest by next year, said ECB policymaker and Finnish central bank chief Olli Rehn on Friday.