By Marta Vilar – MADRID (Econostream) – Econostream’s ECB Tone Meter showed the Governing Council and the Executive Board becoming less dovish this week, with both gauges moving close to neutral.

The Governing Council index rose to -0.01 from -0.09, while the Executive Board index increased to -0.01 from -0.06. With no end to the Iran conflict yet in sight, the overall tone has turned more hawkish, with a couple of Governing Council members already raising the possibility of rate hikes.

 

Biggest Movers of the Week: Kažimír, Schnabel and Lagarde

National Bank of Slovakia Governor Peter Kažimír delivered some of the most notable comments of the week. By saying that “a reaction by the ECB is potentially closer than many people think,” he became the first policymaker to suggest that the ECB could raise rates in the near term.

While more cautious than Kažimír, several of his colleagues also pointed to the possibility of a policy response. Eesti Pank Governor Madis Müller said the probability of the next move being a rate hike rather than a cut had increased, while others — including Latvijas Banka Governor Mārtiņš Kazāks and Deutsche Bundesbank President Joachim Nagel — framed potential action in more conditional terms.

ECB President Christine Lagarde, though still striking a largely neutral tone, also sought to reassure markets that the ECB would act if necessary to prevent inflation from spiralling out of control, even referencing the inflation surge of 2022–23.

Executive Board member Isabel Schnabel stopped short of assessing the likelihood of a rate hike as the next move. However, she stressed that risks were already tilted to the upside, adding that the Middle East conflict had only amplified those upside risks.

 

Dominant Themes in this Week’s Communication: Optionality, but With a Hawkish Tilt

This week’s communication made clear that policy optionality remains, but with the balance of risks increasingly tilted toward tighter policy. While most policymakers stopped short of explicitly advocating rate hikes, several signaled that the ECB stands ready to respond if inflation pressures intensify.

That commitment to containing inflation was also reflected in comments from Banque de France Governor François Villeroy de Galhau. While he said there was no need to raise interest rates at present, he also noted that the ECB would “not let inflation settle in.”