ECB’s Makhlouf Warns It’s Too Early to Plan Pause in Rate Hikes

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(Bloomberg) — It’s too early for the European Central Bank to start planning for a pause in its rapid rate-tightening cycle given the significant challenges to price stability Europe’s economy is facing, according to Central Bank of Ireland Governor Gabriel Makhlouf.

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The ECB is widely expected to raise borrowing costs again on May 4, though in contrast to previous meetings officials are wary of making firm predictions on the size of the move as they await key data on inflation and bank lending due just two days before the decision.

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The reports will reveal whether underlying price pressures, stripping out elements like energy and food, are still at record levels and will shed light on the consequences for credit from recent financial-sector stress that sank lenders in the US and Switzerland.

“On the evidence so far, it’s too early to start planning for a pause in our tightening of policy,” Makhlouf told an industry conference in Dublin on Friday. “Indeed, and again based on the evidence we have to-date, rates will need to continue at restrictive levels to help re-set the balance between supply and demand in the economy and bring down inflation.”

Makhlouf said the financial system is being challenged by the stresses that are being brought upon it by necessary monetary-policy tightening.

Since the collapse of Silicon Valley Bank in the US in early March, Makhlouf said the Central Bank of Ireland has been focused on “potential financial stability implications, the possible indirect effects and channels of contagion.”

“Risks in the non-bank sector may arise especially from liquidity mismatch and leverage, which could adversely affect market conditions should risks materialise,” he added.