- Yesterday’s interest rate hike was necessary
- This is due to the increasing indirect impact of high energy prices on other prices
- The supply shock caused by the war in the Middle East has proven to be strong and persistent
- We cannot simply “see through it.”
- We are keeping all our options open and are prepared to respond again, if we have to, in July
- The ECB has shown its resolve and this is helping to prevent inflation expectations from becoming unstable
His comments are not surprising given that maintaining optionality is the name of the game now.
As we mentioned yesterday herethe ECB is put in a really difficult position with upside risks to inflation and downside risks to growth. The decision to raise interest rates this week was just a show, to prepare themselves in case they need to get more involved in the battle against inflation.
Despite yesterday’s move, interest rates are still holding within the neutral zone set by ECB policymakers. This is not enough to confront inflation pressures significantly, in all likelihood.
The problem now is that traders are still calculating a rate hike of around 36 basis points by the end of the year. The European Central Bank will have to balance these expectations with what it actually needs to do in terms of managing risks to inflation and economic growth.
As said before:
He added: “One political mistake is enough to push the economy into a spiral of stagnation or, if not, inflation. This is a very difficult situation.”
