Klaas Knot, a member of the ECB's governing council and president of the Dutch central bank, recently said that the ECB needs to continue to raise interest rates in the case of "too high" potential inflation.
In an interview on Sunday, Knot said that the ECB would have to raise borrowing costs as long as underlying inflation was not curbed.
He said that the real problem they had was that core inflation was still too high.
The ECB raised its deposit rate by 25 basis points to 3.25% last Thursday, following three previous increases of 0.25%. ECB President also hinted that there could be further rate hikes ahead.
Excluding volatile items such as fuel and food, eurozone consumer prices rose by 5.6% year-on-year in April, slightly lower than March's record 5.7%. The Dutch central bank president, one of the region's more hawkish officials, said the ECB could reach its 2% inflation target sometime in 2025.
According to Knot, their policies are a bit delayed and the maximum impact of what they have done so far is still not fully reflected. And that is why he would recommend at the meeting that the rate increase be reduced from 0.5 percentage points to 0.25 percentage points.
On the other hand, with the Fed raising rates by another 25 basis points last week, the US CPI data for April, scheduled for release this Wednesday, could be a key indicator that will determine whether the Fed will pause its rate hike and leave rates unchanged at its next meeting. And the market is already betting on the Fed to start cutting interest rates in July.
According to the CME FedWatch tool, the probability of suspending a rate hike at the June meeting is 90.4% and the probability of a rate cut in July is 38.1%, compared to just over 20% a week ago.