Europe's economy is taking the higher-rate punch better than many expected, according to European Central Bank Governing Council member Martin Kocher. He told Kurier that since the summer he has seen clearer momentum, calling out better sentiment readings and an improving picture in industry. In his view, the region could absorb additional increases if they are required.
Kocher is trying to keep pressure on inflation without cracking growth. He described the "economic situation" as fragile, and said the aim is to act only when needed: necessary rate steps go ahead and unnecessary ones are avoided. He also reminded readers that rate hikes pull down overall demand and are "unpleasant," and said the preferred path is to reach the 2% inflation goal without more increases. Though usually counted among the more hawkish voices on the Governing Council, he stayed non-committal about the next move.
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The ECB has already pushed borrowing costs higher twice in this cycle, and markets are penciling in three more hikes before the tightening run is over. Kocher said the outlook is too cloudy to pre-commit, citing uncertainty and a price shock tied to the situation in the Middle East. His line in the sand: the Governing Council will reassess the stance at every meeting, letting fresh data and events set the pace.
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