ECB officials back further tightening, as they see rates into ‘restrictive territory’

Over the weekend, European Central Bank (ECB) Executive Board member Frank Elderson said that more interest hikes from the central bank will be in the offing.

Additional quotes

"it’s very important that the expectations that the people have on how the inflation will develop in the medium to long term will not become deanchored.”

“It is vital that people and companies or actors in the economy, in general, maintain their trust that we as the ECB will reach our target of 2% inflation.”

“Getting the inflation development under control again -- and that is a shared belief within the ECB council, in my opinion.”

“In the end, stable prices are much more important for medium-term, long-term growth, for a good outlook for the euro area.”

“We may need to overcome a dry spell, but for now at least it looks like this dry spell and the decline in economic output will not be severe.”

Meanwhile, Bundesbank President and ECB  Governing Council member Joachim Nagel said over the weekend that “Thursday’s step was a clear sign and if the inflation picture stays the same, further clear steps must follow.”

Nagel said: the rate of inflation ahead “is likely to be at a far-too-high level of over 6%”, may peak over 10% in December, adding that “in the course of 2023, the inflation picture is likely to weaken somewhat.”

Citing five sources close to the matter, Reuters reported that “many policymakers saw a growing probability that they will need to take the rate into "restrictive territory", jargon for a level of rates that causes the economy to slow, at 2% or above.”

“This would most likely happen if the ECB's first inflation projection for 2025, due to be published in December, is still above 2%.”

Market reaction

Amidst hawkish ECB expectations and the extended US dollar correction, EUR/USD is testing offers just below 1.0100, adding 0.50% on the day.