ECB’s Muller: The ECB will need a fast resolution on Hormuz to hold in June
- Eurozone hasn't fallen into stagflation
- Don't see reasons to talk about recession now
- The ECB will need a fast resolution on Hormuz to hold in June
While the US-Iran war and the closure of the Strait of Hormuz have pushed headline inflation higher and dampened economic activity, Muller remains cautiously optimistic about the underlying economic foundation, stating that the economy hasn't fallen into stagflation.
This is a bit in contrast to the recent Eurozone GDP which showed a modest 0.1% growth in Q1, with a more pronounced slowdown in the second quarter likely. Moreover, the PMIs showed a clearer slowdown in economic activity in recent months with strong price pressures.
Muller has emphasized that the ECB will require a "fast resolution" to the disruptions in the Strait of Hormuz to hold off from hiking in June. Without an official reopening and lower oil prices, Muller warned that a rate hike in June is likely.
ECB President Christine Lagarde has recently highlighted a state of "double uncertainty," noting that the central bank is grappling with both the duration of the energy shock and its potential second-round effects on wages and consumer prices. Unlike the 2022 inflationary spike, where the ECB was criticized for acting too late, officials now feel they have a better grasp of the transmission risks.
Several governors have suggested that at least two interest rate hikes may be necessary this year if the war continues and Brent crude prices do not retreat. For now, the ECB has held the deposit rate steady at 2%, relying on the "advance effect" of rising market interest rates to do some of the tightening work.
However, as Muller pointed out in prior comments, this effect loses its potency if the central bank remains stationary for too long while price pressures mount.
This article was written by Giuseppe Dellamotta at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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