(Adds quotes from De Cos, data on inflation, banking tensions)
By Jesús Aguado
MADRID, April 10 (Reuters) - Core inflation in the euro
zone is likely to stay high for the rest of 2023, ECB
policymaker Pablo Hernandez de Cos said on Monday, leaving the
door open for further interest rate hikes.
Inflation in the euro zone dropped by the most on record in
March, but growth in core prices accelerated, data showed last
month.
"Core inflation is expected to remain elevated in the rest
of the year ... that may delay convergence towards the 2% target
in the medium run and that will therefore need close
monitoring," De Cos, who also chairs Spain's central bank, told
a financial event in Washington, D.C.
Last year, euro zone core inflation averaged 3.9%, but it
reached 5.7% in March, an all-time high.
In mid-March, the ECB cut its inflation projections but
figures still point to price growth above its 2% target for
years to come.
De Cos said that if the ECB's baseline scenario were to be
confirmed "we still have ground to cover to make sure that
inflation pressures are stamped out."
The inflation path in the March staff projections was based
on a risk-free forward curve that continued to point to
expectations of further interest rate increases.
On Monday, De Cos said that these projections were subject
to uncertainty, which "means we are neither committed to rise
further nor are we finished with hiking rates."
The ECB has raised rates by a combined 350 basis points
since July but did not provide specific guidance for its May 4
meeting, arguing that turbulence in the financial sector
required extra caution.
Although recent financial sector tensions have been
contained so far, De Cos added that if they persisted or
intensified, "a scenario could materialise of significantly
tighter credit and financial conditions and worsening
confidence, with downward effects on economic activity and
prices."
(Reporting by Jesús Aguado and Emma Pinedo; editing by Andrei
Khalip)
Messaging: Reuters Messaging:
jesus.aguado.reuters.com@reuters.net))
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