ECB says case for another rate hike not as strong now

[BRUSSELS] The case for the European Central Bank to raise interest rates for a second time isn’t as clear as it was, according to governing council member Pierre Wunsch.

With the deal between the US and Iran, the origin of the shock has “more or less” disappeared, the Belgian official told Bloomberg TV’s Francine Lacqua in Sintra, Portugal, where he’s attending the ECB’s annual conference.

“We might need another hike – that’s, of course, what the market is pricing – but not as much as we thought in June,” he said on Tuesday (Jun 30). “I would rather, if we believe we need another one, move quickly. It doesn’t mean July.”

The ECB is assessing how the delicate truce between the US and Iran is affecting inflation in the eurozone, and whether further monetary tightening will be needed to get it back to 2 per cent.

Markets think so. Despite paring bets on further hikes after oil prices retreated, they still see one more quarter-point move this year. Officials have also signalled that more may be required, with analysts predicting consumer prices probably rose 3 per cent this month.

Wunsch said there will be “some” second-round inflation effects but that he’s not overly concerned. 

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“We know inflation is going to be above target for a number of quarters,” he said. “So if we need to do another hike, if the data show that it’s required, then I would not wait for too long. But I’m not committing to any specific date.” BLOOMBERG