Bostjan Vasle, European Central Bank Governing Council member and Slovenian central bank Governor, said that given that consumer inflation in the eurozone remains well above the 2% target, the ECB may need to further tighten monetary policy after the March meeting, at which 0.5% interest rate increase is expected.
Markets are pricing in another 50 basis-point hike by the ECB on May 4 and see the peak of rates at just above 4% at the turn of the year. Morgan Stanley, BNP Paribas and Barclays also have revised their forecasts for the ECB's terminal rate to 4% as inflationary pressures weigh.
Preliminary data published by Eurostat showed that eurozone annual inflation declined slightly in February, while core inflation growth accelerated to a record high. According to the report, the consumer price index rose by 8.5% per year after an increase by 8.6% in January. Eurostat reported that the core consumer price index - energy, food, alcohol & tobacco - rose by 5.6% per year after an increase by 5.3% per year in January. Economists had expected a 5.3% increase.
"Given the current inflationary situation, I do not rule out a further rate hike after the March meeting, before we reach a level that will be sufficient to return inflation to the trajectory leading to our 2% inflation target," Vasle added.
Other ECB policymakers who delivered a speech today also signaled continued tightening of monetary policy. Madis Muller, governor of the Bank of Estonia, noted that the March rate hike is most likely not the last, and added that rates will have to remain high for some time. Meanwhile, ECB vice president Luis de Guindos said that the change in interest rates after the March meeting will depend on incoming data. "Overall inflation is likely to continue to decline, and may fall below 6% around the middle of the year. But core inflation could however have a more stable performance," Luis de Guindos added.