July ECB Rate Hike ‘Probable’ Based on Current Data, but Could Still Change, Makhlouf Says
7 June 2023
By Xavier D’Arcy – DUBLIN (Econostream) – The European Central Bank is likely to hike rates at its June meeting, whilst a July hike is also probable but not yet certain, ECB Governing Council member Gabriel Makhlouf said on Wednesday.
In a press conference at the Central Bank of Ireland, which he heads, Makhlouf told reporters that underlying price pressures still looked too strong to allow a return to the ECB’s 2% target.
‘In my view, what's likely to happen next week, when we meet at the ECB, is we're likely to move interest rates up again’, he said, adding that ‘based on what I know today, and that might change in the meantime, I think another, a further move, at our meeting in July is probable. But beyond that I’d just be joining in speculation.’
On last week’s inflation data, he said ‘certainly it's welcome that we've seen a fall in headline inflation, but what we're also seeing, […] underlying price pressures continuing to be strong, certainly continuing to be too strong to get inflation to take us to our 2% target.’
Despite the ‘welcome’ fall in headline figures, ‘it doesn't confirm to us that we've now done all we need to do to get inflation down’, he said.
‘I think further action will be needed and will happen next week’, he said.
‘One of the differences next week compared to our last meeting is we will also have the new projections by staff and there'll be useful for our judgement’, he said, adding that the projections ‘won't be determinative but they will be something different.’
Regarding monetary policy transmission, he said it was ‘too early to conclude that there's some been some fundamental change in the way transmission has been working.’
Transmission of rate hikes to the real economy was ongoing, but ‘we cannot draw conclusions’ on the strength of transmission or the duration of lags, he said.
He dismissed the possibility of Fed rate hikes posing an unexpected risk to the outlook, saying: ‘I don't see the Fed taking action that would be a particular surprise to me, and I think markets are recognising that as well.’