- I haven’t seen second-round inflation effects emerge
- But that is not to say that they don’t exist
- Any Iran peace deal is bound to be a factor in interest rate decision
- Although, it is unlikely to clearly indicate a return to pre-war circumstances
- Market assumptions on rate path indicate in part that they understand our determination to maintain price stability
- Don’t think we are beyond averse scenario presented during the March meeting
- I anticipate we will be presented with new scenarios in June
These are very much just some token remarks by Makhlouf. While the ECB seems almost certain to raise interest rates over the next two quarters, policymakers are trying to sell it as more of an insurance move rather than one that is necessary to outright battle against second-round effects from inflation.
The issue with any rate hikes that the ECB will be delivering from hereon is that even with 50 bps of rate hikes from the current level, it only pushes interest rates to marginally restrictive territory. That at least according to their own definition of where the neutral zone should be. Is that really enough to bring down the stronger inflation pressures that are coming?
And if these coming rate hikes are merely a platform to build on, it is basically a roundabout way of saying that they lowered interest rates too much before even allowing for the inflation outlook to settle before this war started
