(News Bulletin 247) – Klaas Knot, President of the Bank of the Netherlands and member of the Governing Council of the ECB, said on Tuesday that rate hikes after July were not “a certainty” but “at most a possibility”.

Interventions by central bankers are always watched like milk on the fire by the market. And the interview given this Tuesday by Klaas Knot to Bloomberg TV was clearly worth the detour.

The central banker holds the position of President of the Bank of the Netherlands and is therefore also an ex officio member of the Governing Council of the European Central Bank (ECB), the body of the European institution which takes decisions on interest rates. . According to the calendar of voting rights provided by the ECB, he will participate in the rate vote in July and September.

As Stephen Innes of Spi Asset Management points out, Klaas Knot is historically known for being one of the most “hawkish” members of the European Central Bank, that is to say, to simplify who favors above all the control of inflation even if this means that employment and the economy suffer.

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No “certainties” on rate hikes after the end of July

This gives a certain resonance to his words. Klaas Knot admittedly felt that a further rise in key rates at the end of this month – the ECB meeting on July 27 – was “necessary” to bring inflation back on track. This is not surprising, the ECB having indicated quite clearly last month that it intended to make such a decision.

But beyond July, further rate hikes are “at most a possibility but by no means a certainty,” he said, when asked about a possible further rate hike in September by Bloomberg TV.

Beyond this sentence, Klaas Knot also considered that with rate hikes that add up, the risks for the ECB are moving more and more towards the danger of “doing too much”, with therefore a policy too restrictive.

Towards the end of the rate hike?

The central banker said that starting in July, the ECB should “watch carefully what the data will tell us about the distribution of risks surrounding” the central bank’s baseline scenario. He also said it looked like underlying inflation had “plateaued”.

These comments give investors hope that the ECB’s monetary tightening policy is coming to an end. As proof, the declarations of Klaas Knot led the yields of the bonds of the countries of the euro zone to clearly accentuate their fall on the secondary market, where the investors exchange between them the titles of debt. Their prices (which move in the opposite direction to yield) are therefore recovering.

Around 3:30 p.m., the rate of the German 10-year bond fell by 9 basis points (0.09 points) to 2.394%. For Italy and Spain, yields on debt securities with the same maturity fell by 14.7 and 13.2 basis points respectively. The rate on the equivalent 10-year French Treasury bond fell by 10.2 basis points.