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A member of the European Central Bank says that the market is mispricing interest rate increases, and expects more to come

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

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DAVOS, Switzerland – The European Central Bank will not stop at a single 50 basis point hike at its next rate meetings, a board member told CNBC on Thursday.

“It won̵[ads1]7;t stop after a single 50 basis point increase, that’s for sure,” Klaas Knot, who serves as governor of the Dutch central bank, said of the ECB’s upcoming move.

The European Central Bank raised interest rates four times during 2022, bringing the deposit rate to 2%. The central bank said in December that it would raise interest rates further in 2023 to tackle soaring inflation.

Recent data has shown a decline in headline inflation, although it remains well above the ECB’s 2% target.

December inflation came in at 9.2% in the eurozone, according to preliminary figures. This was the second consecutive monthly drop in price increases across the eurozone. However, Knot does not 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 have seen one more inflation reading where there was no sign of abating [the] underlying inflationary pressures. So we have to do what we have to do, and core inflation has not yet turned the corner in the euro area, and that means that the market developments that I’ve seen in, let’s say, the last two weeks or so are not entirely welcome from my perspective. I don’t think they’re actually compatible with a timely return of inflation towards 2%,” Knot said.

Market participants expect the ECB to raise interest 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 has made it clear that there will be at least two more interest rate hikes.

“Most of the ground we have to cover, we will cover at a steady pace with several 50 basis point increases,” he said.

“Where those kinds of 50 basis point hikes are going to end I can’t say in advance, but it’s very clear that our president has used the plural in her wording, I’m using the plural here. So it won’t stop after a single 50 bps hike , that is for sure.”

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