By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Alexander Demarco said on Friday that the ECB could potentially have to hike in June, but that there was no current need to deliver many follow-up steps.

Demarco, who heads the Central Bank of Malta, told Bloomberg that “[i]n June we probably might need to hike,” saying a signal had to be sent to show the ECB’s commitment to its 2% medium-term inflation target.

“It’s about preserving credibility, we can’t be seen to be behind the curve,” he said.

He described inflation currently at 3% as “bad news” and said the risk of energy prices remaining high for longer was now a certainty.

“The good news is that we’re still seeing underlying inflation returning toward 2%, there is not much evidence of indirect effects and medium to long-term expectations have remained quite well anchored,” he added.

Demarco said he did not see a need to raise interest rates very far from the current 2%, but said the projections would need to show what the medium-term outlook implied, including whether one hike would be enough, whether two might be needed or whether more would be required.

He said he expected the ECB’s baseline inflation forecast of 2.6% in 2026 to be revised higher, as it was now more likely that energy prices would remain elevated for longer.

“Downside risks have increased given the conflict has now lasted for three months, and recent signals haven’t been great in terms of prospects for economic activity,” he said.

The ECB did not want to raise rates “too much or too fast” and should be “patient and wait for incoming data,” he said, adding that the meeting-by-meeting approach remained “valid”.

 

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