European Central Bank Governing Council member Klaas Knot warned that prolonged inflation may prompt further increases in borrowing costs in the future.
“I’m not yet convinced that the current tightening is sufficient,” Knot told lawmakers in the Netherlands on Wednesday. “Inflation could well remain too high for a long time and further rate hikes will then be necessary.”
The remarks come as ECB is expected to raise rates next week and again in July. One of its more hawkish policymakers, Knot has previously said he’s “open minded” on the possible need to hike in September, too.
The Dutch central bank chief said Tuesday that the euro area is seeing second-round effects from higher energy costs — meaning it will be harder to bring consumer prices back down to the 2% target.
Officials have raised borrowing costs at the fastest pace in ECB history to counter runaway inflation in the wake of Russia’s war in Ukraine. While price gains are well down from their record, underlying pressures that exclude food and energy costs remain elevated and have become the key focus for policymakers in Frankfurt.
Knot said that if monetary policy has to be tightened more, or for longer, the risk of renewed stress on markets will rise.
--With assistance from Sarah Jacob.
