ECB’s Kazimir: Stresses on frontloading interest rate hikes despite US-Iran peace deal
European Central Bank (ECB) Governing Council member and Governor of the National Bank of Slovakia (NBS) Peter Kazimir seems to be joining his peers in highlighting the need for further monetary policy adjustments on the upside despite the United States (US) and Iran reaching a peace framework.
Remarks
It is increasingly evident that monetary policy has more work to do.
Energy shock is seeping into the economy, requires ECB's vigilance and preparedness to respond.
I am not comfortable with outlook for core inflation above 2% even with more tightening.
I lean towards frontloading work that needs to be done, but need to be agile and responsive to incoming information.
Even with US-Iran peace framework, damage in Middle East cannot be undone overnight.
Market reaction
No immediate response seen in the Euro (EUR) after ECB Kazimir's comments. During press time, EUR/USD trades 0.37% higher to near 1.1610 amid an upbeat market mood.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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