European Central Bank Governing Council member Martin Kocher stated that the ECB's decision this week to maintain interest rates unchanged provides policymakers with more time to assess whether the crisis in the Middle East could drive inflation higher and keep it elevated for an extended period.
The Governor of the Austrian National Bank indicated in a blog post on Friday that the current economic trajectory still largely aligns with the baseline scenario published by the ECB in March. However, the inflation outlook has weakened, with potential for inflation to remain persistently high.
He noted that current data does not yet show broad-based price increases or signs of second-round inflation effects. However, the longer energy prices remain elevated, the greater the likelihood that such risks will materialize.
Kocher's remarks are consistent with those made by ECB President Christine Lagarde on Thursday. Lagarde stated that while policymakers discussed a rate hike this week, they ultimately decided to hold off due to insufficient information, identifying the June meeting as an appropriate time to reassess the situation.
Informed sources suggested that if there is no positive development in energy prices or the conflict situation, the ECB is highly likely to raise rates in June. Should the conflict continue to escalate, there would be little room to delay a rate hike.
German Bundesbank President Joachim Nagel expressed a similar stance on Friday, stating clearly that if the inflation outlook does not show significant improvement, the Governing Council must respond with a rate hike in June. Estonian Central Bank Governor Madis Müller also publicly voiced a similar view, although his term is set to end before the June monetary policy meeting.
Kocher pointed out that the current situation in the eurozone is markedly different from the initial surge in inflation following the pandemic in 2022. Currently, the ECB's key interest rates are at high levels, and governments are no longer implementing large-scale economic stimulus measures.
He wrote in his blog that, based on these differences, the ECB's Governing Council believes the probability of a repeat of the significant inflation surge seen in 2022 is low. The Governing Council remains prepared to act and will adjust its monetary policy stance swiftly and decisively if necessary.
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