By Marta Vilar – MADRID (Econostream) – Econostream’s ECB Tone Meter moved more hawkish in both indices this week, with the Governing Council measure moving from slightly hawkish territory to close to outright hawkish territory, while the gap with the Executive Board narrowed substantially.
The Governing Council index rose to +2.22 from +1.53 last week, while the Executive Board index increased to +1.95 from +0.88.
More policymakers this week expressed clearer support for a rate hike at the next meeting amid rising short-term inflation expectations and the view that the European Central Bank should act to prevent second-round effects rather than wait for them to materialize.
Biggest Movers of the Week: Schnabel, Stournaras and Panetta
In one of the clearest remarks so far in favor of a June rate hike, Executive Board member Isabel Schnabel said on Tuesday that “a rate hike in June will be needed.”
She has gone further than most policymakers in framing support for such a move. Others, such as Bank of Lithuania Governor Gediminas Šimkus, also suggested a hike would come in June, saying in an interview with Econostream: “I do not think we are likely to see better news on the inflation front that would remove the case for hiking in June.”
Bank of Greece Governor Yannis Stournaras was also among the biggest movers this week given the shift in tone relative to his previous remarks. This time, he described a June move as the “most likely” scenario.
Meanwhile, Banca d’Italia Governor Fabio Panetta, who had remained largely quiet on monetary policy since early April, said that the “forward-looking picture calls for a recalibration of the monetary policy stance” to avoid persistent inflationary pressures. Although his language was relatively cautious, using “recalibration” rather than a more direct term such as “tightening,” the remarks nevertheless pointed clearly to support for a move in the near term.
Dominant Themes in This Week’s Communication: End of Conflict Seen as Insufficient to Resolve Inflation Problem
Several policymakers this week argued that even a sudden end to the conflict would not be enough to eliminate inflationary pressures.
Schnabel said that “[e]ven if the war ended today, a lot of damage has already been done to energy infrastructure and global supply chains,” adding that “even then, I believe that a monetary policy reaction would be needed.”
ECB Chief Economist Philip Lane echoed that assessment, though without explicitly specifying the required monetary policy response, saying that “[e]ven if the initial energy shock starts to reverse, the second-round [effects] will be with us for a while.”
Along similar lines, Central Bank of Ireland Governor Gabriel Makhlouf said that the indirect effects of the shock would likely persist even if the conflict were to end immediately.
Panetta focused on the likely path of energy prices in such a scenario, arguing that “[e]ven in the event of a rapid resolution of the conflict, a swift normalization of oil and gas prices seems unlikely.”