ECB hike may be bigger than expected

European nations' high inflation rates and large recent pay rises mean the European Central Bank, or ECB, will keep raising interest rates, a member of its rate-setting governing council has said.

Pierre Wunsch, who also runs Belgium's state bank, told the Financial Times newspaper investors seem to be expecting lower rate hikes than he is.

"We are waiting for wage growth and core inflation to go down, along with headline inflation, before we can arrive at the point where we can pause," he told the paper.

Wunsch made the comment after the trade union Vereinte Dienstleistungsgewerkschaft, or ver.di, secured a 5.5 percent pay rise from the German government in each of the next two years for the 2.5 million public-sector workers it represents and as several other unions pursue larger raises.

The ECB has hiked its deposit rate, from minus 0.5 percent in July to 3 percent in March and Wunsch told the Financial Times: "I would not be surprised if we had to go to 4 percent at some point."

If the ECB were to raise its key interest rate by a full percentage point to 4 percent, it would be going further than both the US Federal Reserve and the Bank of England, which are both expected to put their rates up by a quarter percent at their next reviews.

The ECB will review its interest rate on May 4, after new data is available on bank lending and inflation.

The banking sector has seen huge turbulence in recent weeks, with the United States lender Silicon Valley Bank failing and Credit Suisse needing to be rescued by a rival.

Wunsch said the ECB is hoping Europe's banks cut the supply of credit in the wake of the failures, so the central bank does not need to put rates up by more than a quarter point.

"It's not like I love hiking," Wunsch said. "What we try to do is always to go for a soft landing and nobody is going to err on the side of destroying the economy for the sake of destroying the economy. But I have absolutely no indication that what we are doing is too much."

Wages across the European Union rose by around 5.7 percent in the fourth quarter in comparison to a year earlier.

But ECB governing council member Yannis Stournaras, who heads the Bank of Greece, told ERT television he believes only a small rate hike is likely in May because "we have reached close to the ceiling, close to the maximum increase".

And the Reuters news agency noted that inflation in the EU has not risen since October, when it was about 10 percent, and is predicted to fall quickly.