Informed sources indicate that unless positive developments emerge regarding energy prices and the resolution of the Iran conflict, European Central Bank policymakers are highly likely to raise interest rates at their next meeting in June. Individuals familiar with the internal discussions, who requested anonymity, stated that if the conflict persists, the possibility of avoiding a rate hike would be very slim. However, they emphasized that no final decision has been made and the situation could change rapidly. A spokesperson for the ECB declined to comment.
ECB President Christine Lagarde previously signaled that while policymakers discussed but ultimately rejected a rate hike at Thursday's meeting, the central bank will consider the possibility of an increase at its June session. Officials will have updated forecasts available for the next meeting, and economists and investors anticipate they will opt for a 25-basis-point hike then.
Lagarde stated that the coming six weeks would provide an appropriate period to assess the economic situation, enabling a prudent decision based on verified and re-evaluated information. So far, despite the jump in headline inflation to 3%, the surge in oil and gas costs has not yet triggered significant second-round effects, leading officials to remain unconvinced of the immediate necessity for monetary policy tightening.
Bloomberg Economics commented: "The ECB faces a severe dilemma, with the energy shock driving inflation higher while the economy weakens. Lagarde's mention of a discussed rate hike during the press conference struck a more hawkish tone. Overall, while the ECB may hike in June, its outlook appears more dovish than current market expectations, making aggressive policy tightening this year unlikely." Markets are not anticipating the ECB to stop after June, with current pricing suggesting a total of three rate increases before the end of the year.
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