ECB rate hike in June is ‘all but inevitable,’ Kazimir says

IT’S highly likely that the European Central Bank will have to raise interest rates at its next meeting in June, Governing Council member Peter Kazimir said.

While officials aren’t pre-committed to any fixed path and more data are needed to assess the fallout from the Iran war, “we remain firm in our approach,” the Slovak official said on Monday (May 4).

“On this basis, policy tightening in June is all but inevitable,” he said in an op-ed.

The ECB last Thursday kept borrowing costs unchanged while signalling that a rate increase will be considered at the June 10-11 gathering.

Bundesbank President Joachim Nagel said on Friday that such a move will be needed if there’s no significant improvement in the outlook for inflation and economic growth.

While some of his colleagues echoed such comments, others struck a more cautious tone. 

“Obviously we’re talking about a possible increase in interest rates in June,” Lithuania’s Gediminas Simkus said on Monday. “But whether the decision will actually be taken will depend on the situation and data.”

Should the conflict in the Middle East get resolved, “then it would be a factor that would allow us to think about some other decision,” he added.

Most economists and investors expect a quarter-point hike next month. Markets see two more moves this year.

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Kazimir stressed that “it is becoming increasingly likely that we must prepare for a prolonged period of broad-based price increases coupled with visibly weaker growth across the euro zone.”

While there’s little the ECB can do to offset the direct surge in inflation due to the energy shock, he said higher oil and gas prices are also “bound to spread to the rest of the economy.”

The ECB is facing current challenges from a “position of stability,” Kazimir said. “The memory of the high inflation years is fresh but so is our success in guiding inflation back to target.”

ECB surveys published earlier Monday showed that professional forecasters expect only a temporary jump in inflation. They see it averaging 2.7 per cent this year before returning to 2.1 per cent and 2 per cent in 2027 and 2028. BLOOMBERG