European Central Bank Governing Council member and Central Bank of Malta Governor Alexander De Marco stated that, given the faster-than-anticipated decline in oil prices, the ECB should not rush to implement another interest rate increase, a view he shares with a growing number of policymakers calling for monetary policy caution.
The ECB concluded its rate-hiking cycle in June, with its own economic projections previously predicated on further monetary policy tightening. However, the sharp decline in energy prices in recent weeks provides stronger justification for pausing on a second rate hike.
De Marco, speaking in an interview on the sidelines of an ECB central banking forum, said: "In an environment where price pressures are gradually easing, the prudent course is not to rush into policy action."
He indicated that lower energy costs will swiftly ease market inflation expectations and dampen wage increase demands. Although the inflation rate had previously climbed above 3%, significantly exceeding the ECB's 2% target, real wage growth has remained positive.
Following calls for policy patience from several other policymakers through public and anonymous channels, De Marco's remarks have further solidified market expectations that the ECB is highly likely to keep interest rates unchanged this month.
De Marco noted that the only scenario currently warranting a pre-emptive stronger rate hike would be if indirect or second-round inflation effects rose more than expected, inflation expectations became unanchored, or wage demands persistently increased.
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