(Adds Visco quotes, background on ECB rate decision)
By Giselda Vagnoni
ROME, May 5 (Reuters) - The European Central Bank's
interest rates may be nearing the level required to control
inflation, a policymaker said on Friday, adding that the peak
expected by markets "is an important reference point" for the
central bank.
The ECB raised its key deposit rate by 25 basis points on
Thursday, bringing the benchmark for borrowing costs in the
20-country euro zone to 3.25%.
Asked what level the central bank wants to reach before
stopping the rate hikes, Ignazio Visco, the governor of the Bank
of Italy, said: "It is perhaps not too far from where we are
today."
Visco, who is a member of the ECB's governing council, was
speaking at a presentation of his latest book in Rome.
Money market prices show investors expect another
25-basis-point increase in the deposit rate next month, which
would take it to 3.50%, but are less convinced the ECB will hike
again after that.
The interest rate peak, or "terminal rate," is currently
priced in at 3.65%, likely meaning that most investors expect
the ECB to raise the deposit rate to 3.75%, though a sizeable
minority see it peaking at 3.50%.
The ECB is then expected to start cutting rates as soon as
early next year.
On Thursday, all ECB policymakers except Austria's Robert
Holzmann agreed to slow the pace of rate increases while
signalling more hikes ahead, sources told Reuters, with some
seeing two or three further rises in borrowing costs.
"In the future, monetary policy can only be going
towards higher rates with caution," Visco said, adding that it
was currently being transmitted into the economy in an
"energetic way".
(Reporting by Giselda Vagnoni; editing by Gavin Jones, Alvise
Armellini and Paul Simao)
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