ECB Prepares to Raise Interest Rates in June if Energy Prices Don't Ease
European Central Bank (ECB) officials are expected to raise interest rates at their June meeting unless there are positive developments on energy prices and efforts to end the Iran war, according to people familiar with internal discussions. If the conflict continues, the chances of avoiding a hike are considered very slim, although a final decision has not been made and the situation could change rapidly.
At its meeting on Thursday (April 30), the ECB held its deposit rate at 2% after considering and rejecting the option of a hike. ECB President Christine Lagarde signaled that the next step will be evaluated in the next six weeks, when the central bank will receive updated economic projections to "make a decision based on verified and updated information."
So far, officials do not see the need for further tightening, as rising oil and gas costs have not triggered second-round effects on prices, even though headline inflation has risen to 3%. However, the risks ahead are increasingly complex, as energy pressures could dampen inflation declines and fuel expectations of tightening.
On the growth front, data released before the ECB decision showed the eurozone economy grew just 0.1% in the first quarter, adding to concerns about stagflation, although Lagarde downplayed the label. Markets are currently pricing in the ECB to continue its June rate hikes and expect a total of three hikes by the end of the year.
Lagarde emphasized that the key variable is the duration of the conflict. Investors are now awaiting the direction of energy prices, updates to the ECB's projections at its June meeting, and signs of whether cost pressures are starting to spread more broadly to core inflation and economic activity. (Arl)
Source: Newsmaker.id
