European Central Bank (ECB) Governing Council member Alexander Demarco stated that the ECB may raise interest rates next month to demonstrate its commitment to achieving its policy objectives.
Speaking at the European Finance Ministers' meeting in Nicosia, Cyprus, on Friday, he noted that medium-term inflation expectations "remain relatively stable," making immediate consecutive rounds of further action unnecessary for now. However, upcoming new forecasts will indicate whether this assessment needs adjustment.
Demarco remarked, "We may need to raise rates in June. We must send a signal that we are committed to achieving the medium-term inflation target. This is about maintaining credibility—we cannot be seen as falling behind the curve."
Economists widely believe a rate hike is imminent to prevent high inflation, exacerbated by the conflict in Iran, from evolving into a self-reinforcing spiral that could drive sustained significant price increases. Even some dovish officials within the ECB Governing Council, such as Yannis Stournaras, have hinted at supporting a rate hike, as consumers and businesses still recall the impact of the previous inflation shock.
Demarco observed, "Inflation has risen to 3%, which is bad news; and the risk of energy prices remaining elevated for longer is now a given." However, he also pointed out, "The good news is that we still see core inflation moving back toward 2%, with little evidence of indirect spillover effects, and medium-to-long-term inflation expectations remain quite stable."
This is one reason why the ECB's deposit rate might not need to rise significantly from its current level of 2%.
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