ECB’s hawkish Knot makes dovish sounds on rates long-term

March 31, 2019

BERLIN (Reuters) – Dutch central bank Governor Klaas Knot expects the euro zone economy to pick up speed in the second half after a sluggish start to the year, but in an interview with Handelsblatt the noted hawk was distinctly dovish on long-term interest rates.

Knot, one of the most prominent hawks on the European Central Bank’s rate-setting committee, said though he was strongly in favor of normalizing policy after years of anti-crisis measures, it was clear that even afterwards interest rates would be lower than before the crisis.

He also repeated his scepticism about multi-tiered deposit rates to help well-capitalized banks with excess liquidity, saying he would need to see clear evidence that negative interest rates were hurting lending to the real economy.

Details for a new tranche of long-term ECB bank financing known as TLTRO III would be announced in June or July, he said, adding that conditions for the financing would likely be stricter than previously.

He also issued a warning that markets had not yet fully priced in the potential impact of a disorderly Brexit on Britain’s currency.

“If it happened, there could potentially be a revaluation and the pound would come under pressure,” he told the newspaper.

(Reporting by Thomas Escritt; editing by Emelia Sithole-Matarise)

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