Many people have high hopes for an interest rate hike across the European Union. When that happens exactly remains unsure, although Q4 2022 seems a likely target. Klaas Knot favors winding down the purchasing program by the EBC as quickly as possible.
ECB Interest Rate Hike Speculation
It is in the best interest of central banks worldwide to do something about the current interest rates. Hikingthem is mandatory to make consumers and corporations deposit more funds into a bank’s reserves. However, the current rates do not instill much confidence or make it appealing. If Dutch central bank president Klaas Knot is to be believed, that hike may come later this year.
In a recent interview, Knot claims he expects the ECB to intervene in Q4 2022 at the latest. More specifically, that would be the first interest rate hike by the ECB. Traditionally, such a hike introduces a 0.25% increase, and it seems unlikely anyone should expect more than that. Moreover, Knot adds a second hike may occur in early 2023.
That outlook seems somewhat optimistic and perhaps a tad unrealistic. Unfortunately, the current market conditions do not allow for any bullish sentiment where fiat currencies are considered. Additionally, one must wonder whether consumers and corporations will have much faith in banks and other financial institutions. After all, these are the same parties who have driven up inflation to record highs.
Interestingly, ECB president Christine Lagarde claimed a hike in 2022 is rather unlikely. So while the option is not completely off the table, it is evident things are not cut-and-dried on this front. Nothing will happen until the ECB ends its asset purchasing program. Even then, there is a risk of a wage-price spiral and rising inflation. However, Knot admits the inflation will persist until 2023 or longer before any retrace can occur.
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