Central bank of Malta governor Edward Scicluna believes that the end of interest rate increases is in sight, saying that the increasing difficulty of making a decision to hike rates, and by how much, is “a good sign that the end of the tunnel is not that far”.

Speaking to CNBC correspondent Silvia Amaro while attending the International Monetary Fund and World Bank Spring Meeting, in Washington, D.C., Prof. Scicluna explained that rate increases remain on the table as core inflation has not yet peaked.

Core inflation is a measure that excludes volatile categories like energy and food.

Prof. Scicluna said: “We are trying to attack the core inflation. You know, we can’t do anything about energy prices. But we are very upset to see that [when] inflation starts de-anchoring, that wage-earners would say, ‘We don’t believe we are coming down, so we’ll ask for wage increases’. The same for firms.”

He continued: “So yes, we are worried about the core inflation not yet peaking. We’re expecting it to peak and we have to show that we are serious about continuing fighting this sort of monster and we will be raising for… [trails off]. We are data -driven, we say, it’s true. But that’s a question whether it’s the 25 or the 50 basis points. Which is difficult, not easy.”

Ms Amaro asked, “So you think that is the set up for the next meeting, whether to go 25 or to go 50?”

The CBM governor replied: “That will depend on the discussion, but the general feeling is that once the latest core inflation is still on its upward, you have to continue respecting your mandate and fighting that inflation and showing to people in the whole world that you’re keen to do that.

“Now whether, because of the situation, because of the bank issue and so on, whether that would modify you and therefore you won’t go for another 50…

“Because this new 50, so to speak, is something we’ve seen in this, sort of, track, so to speak. But normally it would be 10 basis points, 25 basis points… but we started from such a low level, below zero, in some rates, that to go up to 350 basis points – because that’s what we did so far. There’s still some way to go on this rate increases.”

The interviewer then asked: “And when you think about where we could end up, obviously, ECB do say that they are data-dependent. The market is seeing around another 75 basis points…”

Prof. Scicluna replied: “Truly, you could feel it, that we’ve reached a balance that.. once the inflation has peaked, and the core inflation is expected to peak as well, you could see, the final push is not that far.

“But when you start playing on balance – whether you should or you shouldn’t – that shows that you’re reaching that point. Forget about projections that say that in 2024, 2025, we’ll reach 2. … We’re talking about now, and you can see the forces on both sides making it a difficult decision.

“It becomes more and more difficult each time – that’s a good sign that the end of the tunnel is not that far.”


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