By Marta Vilar – MADRID (Econostream) – Econostream’s ECB Tone Meter continued to rise this week, albeit at a slower pace than last week, remaining in slightly hawkish territory for both the Governing Council and the Executive Board.

The Governing Council index rose to +0.78 from +0.67, while the Executive Board index inched up to +0.54 from +0.52. Policymakers continued to signal readiness to act if needed and to keep all options open, but appeared less inclined to raise interest rates in the near term, as discussed in this Insight.

Biggest Movers of the Week: Panetta, Villeroy and Rehn

For the first time since the Middle East conflict began, Banca d’Italia Governor Fabio Panetta set out his views this week on the war and its implications for monetary policy. His remarks suggested a shift closer to the Governing Council’s center of gravity, noting that even if the conflict were to end soon, a return to normal conditions in energy markets would take time.

However, he stopped short of aligning with more hawkish colleagues, offering no indication that a rate hike could be the next move and limiting his comments on policy implications to stressing that the ECB must “monitor expectations closely” and “prevent a wage-price spiral.”

Other dovish policymakers also spoke this week. Banque de France Governor François Villeroy de Galhau reiterated that it was “premature” to discuss the timing of any rate hike, while emphasizing that the ECB stands ready to act if needed. Meanwhile, Bank of Finland Governor Olli Rehn said a hike was “not guaranteed” following the latest inflation reading of 2.5%.

Dominant Themes in this Week’s Communication: Closer to the Adverse Scenario

A recurring theme in this week’s communication from ECB Governing Council members was the view that the outlook has shifted away from the baseline toward more adverse scenarios.

Panetta said the ECB’s two less favorable scenarios are now “more plausible” than when they were published on March 19. Banka Slovenije Governor Primož Dolenc remarked that the baseline now appears “more like a best-case scenario for the future,” adding that the current adverse scenario is likely to become the new baseline.

Eesti Pank Governor Madis Müller similarly suggested that the baseline scenario could now “probably be considered the optimistic scenario.