A member of the European Central expects a significant increase in interest rates

European Central Bank member Martins Kazak said the European Central Bank may not be done with big interest rate hikes yet, following it came up with its surprise decision to make its first rate increase of regarding half a percent last week.

Kazak expected that the interest rate increase will also be at a significant rate in September, according to Bloomberg.

It is noteworthy that economists and markets do not adopt a single direction regarding interest rate expectations by the European, with the European Central seeking to rein in inflation in the euro area, which exceeded 4 times its target of 2%.

Asked regarding the possibility of taking a bigger step on interest rates at the next meeting of regarding 75 basis points as decided by the Fed in June, Kazak urged officials to keep an open mind.

“Given the uncertainty, the inflation dynamics, given the risks of persistence, I would say of course we should be open to discussions,” he said, stressing that the ECB should not follow the Fed.

Kazak declined to talk regarding possible scenarios for the October meeting, but said he had “no major objections” to recent market expectations of a 150 basis point increase by June.

Regarding the euro’s recent drop below parity once morest the dollar for the first time in 20 years, Kazak said: “We are not targeting the exchange rate, but the exchange rate is an important factor that drives inflation.” He added, “The very weak euro is a problem.”

For his part, Devesh Mamtani, Director of Financial Risks and Head of Consulting and Investments at Century Financial, told Al-Vision that the European Central Bank raised interest rates in a historic step for the first time in 11 years, to join the ranks of fellow central banks that raised interest rates over the past two months.

Mamtani stated that by this, the European ended the 8-year march of negative interest rates, adding that the decision was contrary to expectations, as analysts expected an increase of 25 basis points, but the European Central Bank’s board of directors decided to raise the three main interest rates by 50 basis points.

It is worth noting that the inflation rate in the Eurozone has entered unspecified areas, and that raising the interest rate is only the beginning of the new normalization cycle by the European Central Bank.

He added that one of the important ironies is that the European Central Bank was the last major central bank to normalize its policy rates due to its great impact on inflation.

Mamtani continued: We must take into account the relationship between the great changes that the world is witnessing and the continuous inflation of the euro, adding that inflation is classified as demand withdrawal, cost payment or combined, and currently this phenomenon includes the characteristics of the three combined, and as a result, monetary policy alone will not be sufficient to slow down Inflation rate, and many are awaiting the interaction of external factors outside the scope of central banks and their support for central bank policy decisions.

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