2023-10-13 06:26:00
He does not rule out an additional interest rate increase, if that is necessary to curb inflation. Last month, the central bank in Frankfurt raised interest rates in the euro zone to their highest level ever for the tenth time in a row. Several ECB policymakers and other experts have already hinted that these increases have come to an end for the time being. But estimates differ as to when interest rates can be lowered again.
“The market is pricing in another interest rate cut before the middle of next year. But I think that is still too early,” Knot said on the sidelines of the annual meetings of the International Monetary Fund (IMF) and the World Bank in Marrakech. “I would assume the current interest rate level for the time being.”
He emphasizes that he and the other policymakers at the ECB will reconsider at each interest rate meeting what is the wisest decision for interest rates at that time. That is why he does not rule out a new interest rate increase. In any case, interest rates will not return to the low levels of the 2010s for the time being. That was the exception,” the DNB boss emphasizes.
One of the reasons for this concerns the fragmentation of the world into different trading blocs. As trade tensions increase and the world appears to be moving away from globalization, the period in which more and more products enter the world market at increasingly lower prices has come to an end. That makes it more difficult to bring inflation down, according to Knot.
According to him, it is not yet clear in the United States what the Federal Reserve will do with interest rates in the near future to put an end to the significant price increases. “The Fed is also still asking the question: have we done enough?”
In the meantime, the risks of higher interest rates are starting to become clear. DNB warned earlier this week that the risk of defaults at companies, for example, is increasing due to the sharply increased borrowing costs. The national debt also appears to increase significantly in the long term because the government has to spend more on interest costs.
Still, it is important “to get inflation under control first,” says Knot. According to him, no one benefits from ever-increasing prices, and people with limited means are also hit the hardest.
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