ECB Governing Council member Simkus: Inflation pressures point to further tightening, a rate hike cannot be ruled out at the October meeting.

ECB Governing Council member and Bank of Lithuania Governor Gediminas Simkus said the European Central Bank may have to raise interest rates again as data point to a continued buildup of price pressures. Inflation data for September came in higher than expected, energy costs are above forecasts and the labor market remains quite strong, Simkus said in an interview. Speaking on the sidelines of an International Monetary Fund meeting in Bangkok, he said that while whether to hike at year-end will depend on more data, action this month can't be ruled out. "Since September, we have more evidence that some monetary tightening may be needed," Simkus said. "From a decision-maker's perspective, you want to decide when you have the maximum amount of data, and the next such meeting is December. But we also can't ignore that we have a meeting in October." The ECB has raised rates twice this year to counter the energy-price shock triggered by the war in the Middle East. Markets and economists expect further moves, but are divided on how high borrowing costs will go. Belgian central bank chief Pierre Wunsch said Wednesday that "we may have to raise rates again," though uncertainty remains high. Simkus said the rise in oil and gas costs has so far not produced significant second-round effects, echoing earlier comments by ECB President Christine Lagarde. But he warned that "the longer energy prices stay high, the higher the probability of spillovers." Simkus said rising sovereign yields are a countervailing factor, but cautioned that he isn't too worried about the euro-area bond market, where France recently led a selloff. "It's important to distinguish between market fragmentation and a justified repricing of sovereign risk," he said. "I think the rise in French sovereign yields stems especially from economic developments, with the market pricing in debt levels, political uncertainty and fiscal fundamentals." Simkus noted that different countries facing different market borrowing costs is "to some extent normal." "Not every rise in sovereign yields," he added, "should be read as market fragmentation." The ECB has an unused crisis tool the Transmission Protection Instrument. Simkus suggested there is no need to activate it, at least for now. "I trust things will be resolved," he said. "At the moment I absolutely don't see a reason for the ECB to play a role." Simkus also addressed the separate issue of the ECB's minimum reserve requirement. Currently, banks must hold 1% of certain liabilities mainly customer deposits in a non-interest-bearing special account at the central bank. Discussion about the requirement has been ongoing for some time. Raising the reserve requirement would allow euro-area central banks to save on interest paid to banks, helping to address losses stemming from quantitative easing. He views this as a "structural part" of the monetary policy framework, not an "actively managed tool." "We shouldn't change the reserve requirement based on economic and monetary conditions," Simkus said, while adding that "there's nothing wrong with discussing it" and the current level is not "unchangeable."