In the view of central bank director Fabio Panetta, the European Central Bank (ECB) is already close to the interest rate peak on its tightening course. "My feeling is that we have not yet reached the end of our cycle of interest rate hikes, although we are not far from it," the member of the ECB's six-member leadership team said in an interview with French newspaper Le Monde published on Friday. The monetary policy debate will soon shift from the question of "how much?" to the question of "for how long?" There is considerable room to fight inflation by keeping interest rates high for as long as necessary. "I don't think this is the right time to rush to raise interest rates because we've already come a considerable way," Panetta noted.

Markus Frühauf

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The ECB has raised key interest rates seven times in a row since the interest rate turnaround in July 2022. Currently, the key deposit rate is 3.25 percent. It had only been raised from minus 27.2022 to 0.5 percent on July 0, 0. Several monetary watchdogs had recently considered two further steps up by 0.25 percentage points each in June and July to be likely. The minutes of the ECB Governing Council meeting on May 4, published on Thursday, show that some Governing Council members would initially have liked a much stronger interest rate hike in the fight against high inflation. In the end, they managed to reach a compromise. Although this included a less sharp interest rate hike of 0.25 percentage points, it also included signals that further hikes were appropriate.

Interest rate hikes have an impact on inflation

The ECB's rapid interest rate hikes last year are now having an impact on inflationary pressures, France's central bank governor and ECB Governing Council member François Villeroy de Galhau said on Thursday. "The rate hikes that we still have to make are relatively marginal, most of the road is complete, and now it is important that what has already been decided is implemented," he said at a conference at the Toulouse School of Economics via video link. His remarks came shortly after data showed that core inflation in the eurozone declined more than expected in May. It fell from 5.6 to 5.3 percent. "It's the first time we've had such a noticeable decline in underlying inflation," Villeroy said.

ECB President Christine Lagarde made it clear on Thursday at the Savings Banks Day in Hanover that the central bank could not yet sit back and relax. The ECB is determined to move inflation down to the medium-term target of 2 percent in a timely manner, she said. "Therefore, we must continue our cycle of increases until we have enough confidence that inflation is well on its way to returning to our target in a timely manner," Lagarde said.