ECB nearing end of tightening cycle but final stretch remains, De Guindos says By Reuters

MADRID (Reuters) -The European Central Bank (ECB) has gone through most of its monetary policy tightening to bring inflation back to its medium-term target of 2%, though the cycle is not quite over yet, ECB Vice-President Luis de Guindos said on Thursday.

“A big part of the journey has been done but there is still the last stretch,” De Guindos told Spanish radio station RNE.

Shortly after his comments, ECB President Christine Lagarde said euro zone inflation remained too high, so further European Central Bank policy tightening was necessary.

The ECB has raised rates at its fastest pace on record over the past year to combat high inflation, slowing everything from the housing market to construction and consumer spending.

Many policymakers and financial investors expect another two ECB rate hikes in the coming months, taking the deposit rate to 3.75% by July, but the jury is out on whether further steps will be needed.

Though Guindos did not elaborate on the exact magnitude or number of potential interest rate hikes, he hinted at further hikes of 25 basis points.

“The size of the interest rate hikes and the number of interest rate hikes will depend on the data we receive (..) last month it was already 25 basis points, and so 25, I think, is the new norm,” he said.

De Guindos said recent inflation data from Spain, France, Italy and Germany were encouraging and showed inflation was coming down, even though the reduction in core inflation is slower.

“The trend is clearly pointing towards a slowdown but we are still very far away from our inflation target of around 2% in the medium term,” De Guindos said.

While headline inflation has come down sharply, underlying price growth is still accelerating on robust demand for services.