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Overly optimistic markets might be caught out by rate hikes, ECB’s Knot says


AMSTERDAM (Reuters) – Inflation expectations in financial markets seem overly optimistic, increasing the risk of renewed stress if monetary policy needs to be tightened for longer to tame inflation, Dutch central bank chief Klaas Knot said on Wednesday.

“Financial markets are extraordinarily optimistic and are expecting inflation to drop as fast as it rose. For next year even rate decreases are already priced in,” Knot said in a hearing in Dutch parliament.

“Exactly in such a situation, a longer than expected period of monetary tightening to keep inflation in check will increase the risk of renewed stress on financial markets.”

(Reporting by Bart Meijer)

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