ECB rates must rise above neutral but QT can wait until 2023, Kazimir says

WASHINGTON (Reuters) – The European Central Bank needs to raise interest rates into the so-called restrictive territory where it holds back the economy but should not start with the reduction of its balance sheet until next year, Slovak central bank chief Peter Kazimir said.

Anther 75 basis point rate hike in October would be appropriate after a similar move in September and further increases may be needed, Kazimir, who sits on the ECB’s rate setting Governing Council told Reuters.

“We won’t stop at the neutral rate, we need to keep powering through,” Kazimir said on the sidelines of the International Monetary Fund’s annual meeting in Washington.

The ECB earlier said it must get to the neutral rate, where it is neither stimulating nor holding back growth but a growing number of policymakers see a need for a foray into restrictive territory to control inflation, which is now running at 10%.

Beyond rate hikes, the ECB already started talking about how to run down its oversized portfolio of public and private debt, bought over the past decade in an effort to rekindle inflation.

But Kazimir said an end to full reinvestments is not imminent.

“Quantitative tightening is an inevitable part of normalisation and policy tightening but it will not start this year,” Kazimir said.

Sources close to the discussion said that policymakers were presented with a preliminary timeline for balance sheet reduction which sees the ECB detailing these plans in December or February with actual quantitative tightening possibly starting in the second quarter of 2023.

(Reporting by Balazs Koranyi; Editing by Sam Holmes)