Dutch central bank leader says ECB interest rates could rise again soon

Investors betting that the European Central Bank (ECB) will not increase the interest rate next week might be underestimating the likelihood that this could happen, said Klaas Knot, the president of the Dutch central bank De Nederlandsche Bank (DNB) and a member of the ECB board in an interview with Bloomberg published on Wednesday.

Although the slowdown in the eurozone's economy will undoubtedly dampen demand, the new inflation projections will not vary much from earlier estimates, according to Knot. In July, the ECB raised the interest rate again by a quarter percentage point to 3.75 percent to combat inflation. There was no interest rate meeting by the ECB in August.

The ECB has raised the interest rate nine times in a row. However, a tenth increase is not a foregone conclusion, Knot said. The decision by the board during the meeting on September 14 will be a "close call," according to the president of the Dutch central bank.

The central banker personally believes that achieving the inflation target of 2 percent by the end of 2025 is “the bare minimum” that the ECB should deliver. “I would clearly be uncomfortable with any development that would shift that deadline even further out. And I wouldn’t mind so much if it shifted forward a little bit,” Knot said.

At the same time, he warned against "too much pessimism" about the economy. “We’re talking about weakness here. We’re not talking about outright recession.”

Since the summer vacation, many heads of the national central banks in the eurozone have spoken about the ECB meeting in September. The central bank presidents of Germany, Belgium, Austria, and Latvia have already hinted at their support for a new quarter-point interest rate hike. However, they indicated that it might be the last interest rate step for the time being. In contrast, their counterparts from Italy and Portugal highlighted the economic risks of further interest rate increases.

French central bank president François Villeroy de Galhau stated in a TV interview on Wednesday that the interest rate has nearly peaked. However, he did not specify whether this means the ECB should increase or maintain the interest rate next week.

The President of the European Central Bank Christine Lagarde emphasized that so far inflation is still too high, and the central bank is determined to reduce it to the desired level. Whether the interest rate will be further increased in the next meeting depends on the economic data available at that time, according to her.