UK Markets closed

ECB still needs more rates hikes beyond March, Vasle says

FILE PHOTO: A view of signage outside the European Central Bank (ECB) building in Frankfurt

FRANKFURT (Reuters) - The European Central Bank needs more interest rate increases after a planned 50 basis point hike in March as inflation remains far too high, Slovenian central bank Governor Bostjan Vasle said on Friday.

Euro zone inflation slowed far less than expected last month while underlying figures, a key measure on durability of price growth, soared to 5.6%, pointing to stubborn and persistent price growth above the ECB's 2% target.

"My personal expectations is that the increase we intend for our March meeting -- that is 0.5 percentage points -- will not be the last one," Vasle said in a speech in Ljubljana. "We will have to continue with increases of our interest rates in the following months."

"My expectations is that the increase we intend for our March meeting will be followed by additional increases before we reach a level that will be sufficient to bring inflation back to the trajectory towards our goal of 2% inflation," Vasle added.

The ECB's 2.5% deposit rate, already up 3 percentage points since July, will rise to 3% on March 16 and markets now see it increasing by another 50 basis points in May before eventually hitting 4% this year.

While economists have been more cautious, several prominent banks raised their peak rate expectation in the past few days, including Barclays, Goldman Sachs and Morgan Stanley.

Vasle added that the ECB will also continue to reduce the size of its balance sheet after ending the full reinvestment of maturing debt earlier this month.

(Reporting by Balazs Koranyi; Editing by Frank Jack Daniel)