Economy

ECB Interest Rates at Favorable ‘Cruising Altitude’, Says Knot

AMSTERDAM (Reuters) – The European Central Bank (ECB) is likely to maintain interest rates at their current levels over the next few months as it seeks further confirmation of a decline in inflation, according to Dutch ECB governing council member Klaas Knot.

In a speech in Amsterdam, Knot remarked, “Personally, and conditional on incoming data confirming the latest projections from September, I see the current level of our policy rates as a good ‘cruising altitude’ where they can remain for some time.” He emphasized the importance of patience, warning against raising rates excessively to avoid stifling economic growth.

As the ECB continues to analyze incoming data to validate its inflation forecasts, it is also tasked with reducing its balance sheet after years of supporting financial markets through substantial bond-buying initiatives. Knot noted that the markets have so far managed this transition well, though he anticipates the ECB’s balance sheet will need to stay larger than it was before the global financial crisis.

He explained that “structural changes in financial markets, including a higher demand for liquidity, will necessitate larger central bank reserves in the future.” Knot believes that refinancing operations will be the most effective method for providing the necessary level of reserves moving forward.

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