Two influential members of the European Central Bank’s Governing Council have indicated that additional interest rate hikes are likely necessary to address ongoing inflationary pressures in the eurozone. Pierre Wunsch, who leads Belgium’s central bank, and Robert Holzmann, Austria’s central bank governor, both made their projections on March 21, 2023.
Their statements reinforced comments made the previous day by colleagues from Slovakia and Lithuania, creating a unified hawkish stance within the council. The eurozone’s inflation rate currently stands at 8.5%, significantly above the ECB’s target. “Inflation is proving to be considerably tougher than anticipated,” Holzmann told ORF 1 radio in Austria.
“I do anticipate a few more interest rate increases.” He noted that the magnitude of future hikes would be determined by incoming data. Wunsch, speaking to the Belgian newspaper L’Echo, stated: “We know that we need to do more of this.
At what level? That is unclear. Meeting by meeting will take place.” The ECB raised its benchmark refinancing rate by 50 basis points on March 16, 2023, bringing it to 3.5%.
Since July 2022, the central bank has implemented cumulative rate increases totaling 350 basis points. Holzmann addressed the question of how high the benchmark rate might ultimately rise.
“Some of us are hoping it will stay below 4%. It will probably rise above 4%, I’m afraid,” he said. Wunsch added that the ECB had a “far way to go” if its baseline inflation projection materializes.
The bank’s March forecasts indicated inflation would remain above its 2% objective through 2025, though those projections were made before significant selloffs in bank shares occurred that week. The ECB acknowledged that recent events—including the failure of two American banks and emerging problems at Credit Suisse Group—have increased uncertainty about the economic outlook.
Despite these concerns, the hawkish council members continue to advocate for tighter monetary policy. The central bank’s primary mandate is maintaining price stability, defined as inflation below 2%. The current rate of 8.5% represents a substantial deviation from this target. The ECB’s decision to proceed with a rate increase despite recent banking sector turmoil underscores its focus on controlling inflation.
Further rate increases could raise borrowing costs for consumers and businesses across the eurozone. However, council members argue such measures are essential for achieving long-term economic stability.
As Holzmann emphasized, the bank’s future decisions will depend on evolving economic data and conditions.
