European Central Bank Governing Council member Joachim Nagel indicated that following Thursday's 25 basis point rate increase, eurozone interest rates continue to reside within a "broadly neutral" range.
Speaking on Monday, the Bundesbank President stated, "Consequently, the current fundamental monetary policy stance neither exerts pressure on the economy nor hinders structural measures aimed at fostering growth."
He further commented on several economic factors, noting that even if the Strait of Hormuz reopens to shipping in the near future, it would still take several months for oil supplies to normalize. This recovery period is extended given that some production facilities in the region have been damaged, are offline, and inventories are being drawn down.
Additionally, he warned that price pressures could rise again once fiscal policy measures designed to lower energy prices expire.
Nagel emphasized that monetary policy is not the tool for addressing short-term supply shocks, stating, "We cannot simply stand by and wait to see how events unfold."
He also highlighted that high energy costs are likely to become increasingly evident in consumer prices over the coming months. The possibility of second-round effects cannot be ruled out at this stage.
While the current risk of high wage demands further driving up prices is assessed as low, Nagel cautioned that second-round effects could materialize if inflation expectations were to rise.
The European Central Bank is keeping all options open for its upcoming July policy meeting.
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