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ECB · Energy Prices · Inflation · Interest Rates
ECB Executive Board member Isabel Schnabel stated the European Central Bank should not rush its response to the Iran conflict, urging officials to remain agile and vigilant while carefully weighing decisions, despite a "massive energy price shock" causing a "sharp" increase in investors' future inflation expectations.
Schnabel, widely seen as the ECB’s most hawkish interest rate-setter, emphasized the necessity to analyze incoming data for evidence of second-round effects, the strength of the demand environment, and the likelihood of inflation becoming entrenched in expectations and wage growth before implementing any action. This measured approach aligns with President Christine Lagarde's stance of not acting without sufficient information.
However, Bundesbank President Joachim Nagel and Belgian central-bank chief Pierre Wunsch indicated a rate hike might be considered as soon as April or by June if the conflict persists. Traders have trimmed wagers on monetary tightening, now seeing slightly more than a 50% chance of a quarter-point increase next month, a decrease from Monday when money markets fully priced a move.
Schnabel affirmed the ECB will act decisively to ensure inflation stabilizes at 2% if a persistent impact on inflation, core inflation, and wage growth becomes evident.
ECB's Schnabel Urges Patience on Rate Hikes(current)
The euro fell against the dollar and looked vulnerable as investors seemed more minded to brace for an escalation in the war, rather than a ceasefire, ING said.
