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A member of the European Central Bank says the market is mispricing rate hikes and expects more to come

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Klaas Noth, president of De Nederlandsche Bank, spoke to CNBC in Davos.

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DAVOS, Switzerland — The European Central Bank will not stop at one 50 basis point hike at its next rate-setting meeting, a board member told CNBC on Thursday.

“It’s not going to stop after one 50 basis point hike, that’s for sure,” said Dutch central bank chief Klaas Knoth on the ECB’s future moves.

The European Central Bank raised rates four times during 2022, bringing the rate on deposits to 2%. In December, the central bank said it would raise rates in 2023 to deal with sky-high inflation.

The latest data showed a slowdown in headline inflation, even as it remains well above the ECB’s 2% target.

December inflation in the euro area, according to preliminary data, amounted to 9.2%. It was the second consecutive monthly drop in price growth in the eurozone. Knott, however, doesn’t think all the latest data is “encouraging.”

“What we have seen so far is data that is not encouraging from our side,” he said at the World Economic Forum in Davos.

“We saw another inflation rate where there was no sign of abating [the] underlying inflationary pressure. So we’ve got to do what we’ve got to do, and core inflation in the euro area hasn’t turned around yet, and that means the market developments that I’ve seen over, say, the last two weeks or so, are not exactly welcome from side my perspective. I don’t think they’re actually compatible with a timely return to 2% inflation,” Knott said.

Market players expect the ECB to raise rates at its next meeting in February. The broader question is whether the central bank is becoming too aggressive with policy tightening and limiting economic growth. However, Know made it clear that there will be at least two more rate hikes.

“Most of the territory that we have to cover, we will cover at a constant rate of several 50 basis point hikes,” he said.

“I can’t say ahead of time where this pace of 50 basis points will end, but it’s very clear that our president has used the plural in his wording, I’m using the plural here. So it’s not going to stop after a single 50bps hike, that’s for sure.”

Rate hikes won't stop after one 50 basis point hike, says ECB Knot

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