Just a week ago the European Central Bank (ECB) brought interest rates to 3% with a new rise of 0.50 points. The president of the entity, Christine Lagarde, announced that another one would arrive in March. And now her number two, Vice President Luis de Guindos, opens the door for even more increases to follow after that. "The battle with inflation has not been won. I would not rule out further increases in interest rates after March," he stated in an interview with the German Süddeutsche Zeitung.
The manager added that the markets, in a constant rise since the beginning of the year, could be being too optimistic about the inflation outlook. "It is quite possible that they are being overly optimistic in terms of inflation developments and the reaction of our monetary policy," he said. After last week's decision, the markets reacted upwards by assuming that the peak of increases would be reached in March, around 3%-3.50%.
Guindos has assured that the rise in March will be another half a point. A battle with inflation pending to be won that he acknowledges has not been fully appreciated. "Central banks and other organizations believed for a long time that the increase in inflation was temporary. I have to admit that this was a mistake, but the level of uncertainty was enormous. We all underestimated the persistence of inflation," he said. "In December 2021 we already decided to stop our asset (debt) purchases related to the pandemic and in July of the following year we started raising interest rates. In hindsight, we should have started to react even earlier."
In any case, when asked if the ECB should apologize to the public for this mistake, Guindos replied that they cannot change the past and that it is necessary to look to the future. "The best we can do is bring inflation down to our 2% target as soon as possible," he added.
To comply with this, Guindos has asked the unions to moderate their demands to raise wages, to avoid second-round effects, a situation in which "nobody wins" and which will push for more rate hikes.
