The European Central Bank ECB will likely need to raise interest rates further to tame persistent inflation, two leading hawks on the bank's policymaking Governing Council said on Saturday, while playing down the risk of a 2008 financial crisis.
The comments from the central bank chiefs of Austria and Belgium backed up remarks made by two fellow hawks - their Slovakian and Lithuanian counterparts - and pushed the case for higher rates to tame inflation running at 8.5% in the euro zone.
The ECB raised interest rates as promised by 50 basis points on Thursday, sticking with its fight against inflation and facing down calls by some investors to hold back on policy tightening until the banking sector settles down.
Robert Holzmann of Austria and Pierre Wunsch of Belgium said further action would be needed.
Inflation is proving to be much tougher than thought, according to Holzmann, who spoke to Austria's ORF 1 radio. I think there's going to be more interest rate hikes. He said that the extent of further increases would be data-dependent.
The benchmark refinancing rate was lifted by the European Central Bank by 350 basis points since July, lifting its benchmark refinancing rate to 3.5% on Thursday.
Wunsch told Belgian paper L'Echo that we have to do more of this. That is not clear. It will be meeting by the way of meeting. Asked how high the benchmark rate could go, Holzmann replied: Some of us are hoping it will stay below 4 I'm afraid it's going to go above 4; asked how high the benchmark rate could go, the European Central Bank had a long way to go if its baseline inflation forecast materialised.
The ECB projected inflation would remain above its 2% target through 2025, based on forecasts it said had been formulated before a huge selloff in bank shares this week.
The outlook on Thursday had become more uncertain after the collapse of two banks in the United States and more problems at Credit Suisse Group, according to the European Central Bank.
Since the collapse of Silicon Valley Bank and Credit Suisse were forced to tap $54 billion in central bank funding, raising questions about other weaknesses in the financial system.
Asked if he saw the risk of another global financial crisis, like that of 2008, Holzmann replied: No, because both the Silicon Valley Bank problems and now Credit Suisse are rather special problems. Credit Suisse was dealing with a longstanding restructuring problem, he added.
Wunsch said we don't see a structural problem with European banks, but he added it remained to be seen what impact the events in the US banking sector and around Credit Suisse would have in the coming days.
We do not see a risk of contagion or a risk of instability if we look at the figures from a rational perspective, said Wunsch.
Asked a question about the future of Credit Suisse, Wunsch said he only saw a very low chance that the bank might go bankrupt.
According to the public figures, its situation is not bad in itself and, secondly, the Swiss authorities would intervene if necessary, as it is a bank of systemic importance, he said.