ECB needs several more significant rate hikes, Rehn says

The European Central Bank must still raise interest rates "significantly" over its coming meetings to restrict growth and dampen inflation, which has been far too high, Finnish central bank chief Olli Rehn said. The ECB has raised rates by a combined 2.5 percentage points since July and promised "a steady pace" of hikes over the coming months but some policymakers have started to argue that a peak in interest rates may be near given a looming recession.

"Policy rates will still have to rise significantly," Rehn, who sits on the ECB's rate-setting Governing Council, told a webinar with the Peterson Institute for International Economics. "This means significant rate hikes at this winter's remaining meetings."

Most central banks, with the notable exception of the Bank of Japan, have been raising rates quickly to fight off a historic surge in inflation and the ECB has been criticised for moving too late. While most policymakers reject this argument saying it took time to dismantle a decade of stimulus, Rehn said some of the criticism may be fair.

"With the benefit of hindsight, there may be some truth in this argument, at least from the standpoint that we could thus have created more policy space to react if the euro zone economy falls into recession," Rehn said. But Russia's invasion of Ukraine created pervasive uncertainty, which justified prudence, Rehn added.

The 20-nation euro zone is expected to suffer a recession over the winter months but the economy appears more resilient than feared, so the downturn may be shorter and shallower than forecast.

Meanwhile, The European Central Bank may raise interest rates at its current pace for a "period of time" to curb inflation, said VicePresident Luis de Guindos. "We have no choice but to act," he said in an interview with Le Monde paper published on Thursday.

"Increases of 50 basis points may become the new norm in the near term. If we do nothing, the situation would be worse because inflation is one of the factors behind the current recession," The steps the ECB had taken so far were going to have an impact on inflation, "but we still need to do more". The ECB last month eased the pace of its interest rate hikes but stressed that significant tightening remained ahead while laying out plans to drain cash from the financial system as part of a dogged fight against inflation.