ECB Governing Council member Martins Kazaks pushed back on talks that the central bank would cut interest rates by the end of this year. He said he failed to see a “rationale” for that.

“It would take a deep recession with a sizeable jump in unemployment for inflation to sink and thus push for rate cuts,” the Latvian central bank governor said. “But that is not likely, given the current macro outlook.”

“It is possible for core inflation to continue trending up even as headline inflation is coming down, for instance, due to swings in energy prices,” he said. “In my view, core inflation currently is a key gauge for inflation persistence and policy decisions.”

He expects interest rate to rise “well into restrictive territory” but declined to estimate the terminal rate. “Uncertainty is too high, and we shall find it step-by-step,” he said.

In ECB’s November Consumer Expectations Survey, mean inflation expectations for the 12 months ahead dropped back to 7.3%, comparing to October’s 8.1% and September’s 7.3%.

Median inflation expectations for the 12 months ahead dropped to 5.0%, comparing to October’s 5.4% and September’s 5.1%.

Mean inflation expectations for the 3 years ahead dropped to 4.6%, comparing to October’s 4.9%, and September’s 4.8%.

Median inflation expectations for the 3 years ahead dropped to 2.9%, comparing to October’s 3.0%, and September’s 3.0%.

Full release here.

In the monthly Economic Bulletin, ECB said, “evidence from surveys and markets shows that forecasters continue to expect inflation to peak soon, with longer-term expectations remaining at around the ECB 2.0% target.” Still, “close monitoring is warranted given the further above-target revisions of some indicators”.

In the December Eurosystem staff macroeconomic projections, headline inflation in Eurozone ill fall from average 8.4% in 2022 to 6.3% in 2023, 3.4% in 2024, and then 2.3% in 2025. Headline inflation is expected to remain above the ECB’s target of 2.0% until mid-2025

Full economic bulletin here.

ECB Governing Council member Pablo Hernandez De Cos said yesterday, “we plan to continue increasing interest rates significantly in the next meetings.” Also, tightening will continue “until reaching sufficiently restrictive levels to ensure that the inflation returns to the 2% target over the medium term.”

“Keeping interest rates at tight levels will reduce inflation by dampening demand and will also protect against the risk of a persistent upward shift in inflation expectations”, he explained.

De Cos also noted that Since last meeting, markets have raised the expected terminal rate by 30bps to 3.4%. However, market rates incorporated a positive premium, and “the market’s genuine expectation of what the maximum level of the deposit facility rate would be is somewhat below that figure.”

ECB Governing Council member Olli Rehn said, “Policy rates will still have to rise significantly… This means significant rate hikes at this winter’s remaining meetings.”

Though he also admitted that it’s a fair argument that it takes time to reverse the a decade of stimulus.

“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.

ECB Governing Council member Mario Centeno said yesterday, “we are approaching the end of the current process of interest rate hikes, I believe that is true.”

Centeno said that “wage updates in Europe could make it difficult for prices to continue to fall” in the next two months, but “after that, inflation will fall again from March onwards.”