(Bloomberg) -- The European Central Bank is likely to begin the process of shrinking its balance sheet next year, once it’s raised borrowing costs to a point that they no longer stimulate the economy, according to Governing Council member Olli Rehn. 

“Once we have reached roughly the neutral level of policy rates, we will start the balance-sheet adjustment,” the Bank of Finland chief said Friday in a speech in Washington. “In my view, in the first half of next year.”

Rehn didn’t speculate on the level of the neutral rate, which is thought to be somewhere between 1% and 2%.

“We should not get overly fixated on what that level is or spend too much time and effort on guesstimating its precise level,” he said.

The central banker, who leans slightly hawkish, also said that interest rates will continue to rise.

“In the current context, we definitely know that inflation is simply much too high, and we need to act accordingly by tightening monetary policy,” he said.

The ECB meets next on policy in less than two weeks and is expected to deliver another 75 basis-point hike in rates. Talk is also turning to so-called quantitative tightening -- offloading the trillions of euros of bonds that were purchased during recent crises. ECB hawks are targeting early 2023 to start that process.

“The size of our balance sheet is an integral part of our regular discussions on the ECB’s appropriate monetary policy stance,” Rehn said. “It is our price-stability mandate that defines the terms of this debate, as well.”

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