By Jesús Aguado

MADRID, Reuters – The European Central Bank is likely to raise interest rates soon after it has ended its bond-buying program early in the third quarter. There are also the possibility of further increases in the coming quarters. Pablo Hernandez de Cos, policymaker, stated that.

He made his comments Wednesday after Olli Ren, chief of Finland’s central bank, a policymaker, said that the ECB must move fast out of negative rate territory to avoid inflation expectations.

De Cos stated that a gradual withdrawal from extraordinary monetary stimuli was appropriate in current circumstances, when inflation projections are at risk and core inflation is clearly above medium- and long-term expectations.

De Cos indicated that rates could rise further to match the natural rate of inflation if there is no change in the medium-term inflation outlook. However, he did not give any details about the possible rate hikes.

Currently, financial markets price 112 basis point increases to the ECB’s deposit rate. This is at minus 0.5% for the remainder of this year. With the first move anticipated in July followed by each subsequent policy meeting, [ECBWATCH]

Rehn stated that it was necessary for policy rates to move quickly from negative territory in order to continue the gradual process towards monetary policy normalization. He spoke at a seminar held in Helsinki.

Many ECB policymakers are already in favor of a July rate hike, while others support bringing the deposit rate up to positive territory.

De Cos stressed that it was important to not make abrupt moves, as this could prove particularly dangerous given the current state of uncertainty.

He stated that this gradual approach must be followed to ensure that inflation expectations are anchored. Also, that there is no indirect or second round effect of any magnitude which could compromise this anchoring.

While the ECB is scheduled to meet again on June 9, they have essentially ruled rates increases out, while buying government debt as part of a plan that will end at mid-year.

At 7.5%, inflation is at a record high. The ECB expects that it will stay over 2% for many years, with underlying prices pressure increasing.