ECB has long road on disinflation but in a good place now: Knot By Reuters

MARRAKECH (Reuters) – The European Central Bank has made “important progress” in getting inflation back down to target but there is still a long road ahead and a further rate hike cannot be ruled out, Dutch central bank chief Klaas Knot said on Wednesday.

The ECB has raised interest rates at each of its past ten meetings but has signalled a pause for October, with some policymakers arguing the bank has done enough while others are firmly keeping more rate hikes on the table.

“All in all, we made important progress on getting inflation back to target, but we still have a long and winding road ahead,” Knot told a conference in Marrakech, Morocco.

“I do believe that policy at this moment is in a good place … (but) we will remain vigilant and we stand ready to adjust interest rates even more if the disinflation process were to stall.”

Knot argued that the ECB has a “credible prospect” of getting inflation back to target by 2025.

Inflation is seen falling close to 3% by the end of this year, then stagnating for most of next year before disinflation targets again into 2025.

Knot argued that the euro zone economy was now facing a period of economic stagnation as manufacturing is in a recession now and the services sector has started to suffer too.

“The cooling of economy that we’re currently undergoing is also desirable in a way,” Knot said, arguing that weak growth helps reduce demand and fight inflation.

But he argued that, over the medium term, the outlook was brighter and growth was likely to rebound.