By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Pierre Wunsch said on Wednesday that if the Middle East conflict had not ended by the time the Governing Council meets on June 11, the chances of an interest rate hike would be quite high.

Wunsch, who heads the National Bank of Belgium, told Bloomberg TV that the recent bond sell-off “does not really impact the way we think about the problem.”

The ECB would eventually have to act, given that inflation was now around 3%, he said.

The economy is not as strong as it was in 2022 and an inflation problem is beginning to emerge, according to Wunsch.

“I think we are at the stage, and actually in April I was already slightly in favor of hiking in April,” he said. “I could agree with the decision, which was to wait, because again there is a value in waiting, but at some point, I think we have to be positioned to the risk that inflation would be again as it was after the increase in inflation in 2022 that it could have some persistence.”

It was difficult to know how persistent inflation would prove to be, he said, adding that his impression from business-to-business data was that the “pass-through will be quite fast.”

However, Wunsch said wage developments had so far been “very benign”.

Asked whether he would support a move in June, he said, “I've already said, I guess, even a number of weeks ago, that if the conflict is not resolved by June, that I think the likelihood of a hike is quite high.”

He added that some form of agreement before June 11 could push oil prices lower and lead the ECB to decide to hold rates steady.

“But as such if the conflict is not solved by June, it is bad news because it's always difficult to read into the markets forwards,” he said. “But I guess some of what we see in the pricing is based on the idea that this conflict is going to be solved sooner rather than later.”

Wunsch said there was a lot of discussion about a possible disconnect between current oil prices and the underlying reality of a supply shortage, with Western countries, and potentially China, drawing down reserves.

 

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