ECB’s Patsalides: Rate hikes in ECB projections don’t obligate us
- The passage of time definitely works against us on inflation
- If higher oil prices persist, inflation risks will rise
- September decision remains open and data-dependent
- Second-round effects are not evident, expectations are anchored
- Rate hikes in ECB projections don't obligate us, policy can't depend on today's yield curve
- As inflation risks rise, balance shifts towards a pre-emptive action
- Higher prices may already be filtering into part of the economy not easily observed
- Full report here
ECB Governing Council member Christodoulos Patsalides said there was no justification for raising interest rates at last week's meeting as inflation remains broadly in line with the ECB's projections, inflation expectations are well anchored, and there is currently little evidence of second-round inflation effects or excessive wage growth.
However, he warned that the risk to inflation is steadily increasing as elevated oil prices persist. The longer energy prices remain high, the more likely they are to feed into other goods and services, making inflationary pressures broader and more persistent. He stressed that "the passage of time works against us", with upside inflation risks accumulating every day the energy shock continues.
Although Patsalides acknowledged that the September policy meeting remains fully data dependent, he suggested that the value of acting pre-emptively increases as inflation risks build. While policymakers still need evidence before tightening policy, they cannot necessarily wait until all second-round effects become clearly visible because monetary policy must stay ahead of inflation.
He emphasized that he has not yet decided how he will vote in September, saying the Governing Council will closely monitor incoming data, including evidence of second-round effects, inflation expectations, wages, purchasing managers' indexes (PMIs), and the transmission of higher oil prices through the economy.
Patsalides rejected the idea that the ECB is committed to future rate hikes simply because they are embedded in the market yield curve used for the ECB's projections. He stressed that policy decisions are not constrained by market assumptions and will always depend on the latest economic data and risk assessment.
He described the current monetary policy stance as neutral to restrictive and believes interest rates are currently at the appropriate level, while acknowledging that this assessment could change if inflation risks continue to intensify.
Patsalides also opposed returning to forward guidance, arguing that making public commitments about the future path of interest rates would reduce the ECB's flexibility and credibility during a period of elevated uncertainty.
The market is currently pricing in a 65% chance of a rate hike at the September meeting and a total of 37 bps of tightening by year-end.
This article was written by Giuseppe Dellamotta at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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