- I have not seen the effects of second round inflation emerging
- But that doesn’t mean they don’t exist
- Any Iran peace deal is bound to be a factor in the interest rate decision
- However, this is clearly unlikely to signal a return to pre-war conditions.
- Market sentiments on the rate path partly indicate that they understand our determination to maintain price stability
- Don’t think we are beyond the adverse scenario presented during the March meeting
- I hope that new scenarios will be presented to us in June
These are just some indicative comments of Makhlouf. While the ECB seems almost certain to raise interest rates over the next two quarters, policymakers are trying to sell it as an insurance move, not necessarily to fully fight against the effects of another round of inflation.
The problem with whatever rate hike the ECB makes from here is that even with a 50 bps rate hike from current levels, it pushes interest rates into only mildly restrictive territory. This is at least according to their own definition of where the neutral zone should be. Is this really enough to mitigate the strong inflationary pressures to come?
And if these upcoming rate hikes are just a platform to build on, it’s basically a round-about way of saying that they’ve already cut interest rates too low to allow the inflation outlook to settle before this war started. I guess you can’t always win them all but they’ve certainly dug themselves into this hole.
