Top ECB policymakers sent fresh warnings about rising eurozone inflation risks on Thursday, with one likening the current economic situation to that at the start of the bank's last rate hike cycle in 2005. The ECB raised rates to 1.25 percent last Thursday, beginning what financial markets expect to be a steady run of hikes despite assurances from the bank's President Jean-Claude Trichet that a cycle of increases is not pre-programmed.
ECB Executive Board members Jose Manuel Gonzalez-Paramo and Lorenzo Bini Smaghi both focused on rising eurozone inflation on Thursday, fuelling expectations among economists that the bank will raise rates again in either June or July. "Risks to growth are balanced, inflation (risks are) to the upside," Gonzalez-Paramo told reporters on the sidelines of the Risk & Return Russia conference in Moscow.
"Oil prices are the main driver of the recent increase in inflation. The expectation in the market is that oil will not go down quickly." In an interview with Reuters, Slovenia's ECB policymaker, Marko Kranjec said the bank's monetary policy was still "very accommodative" after last week's rate rise and that the financial system remained well stocked with ECB funding.
Bini Smaghi, who has been a pacemaker for the ECB's rate hike rhetoric this year, said in an interview with Italian paper Il Sole 24 Ore that the current macro economic backdrop mirrored that of 2005, when the ECB launched a series of hikes that raised rates from 2 percent to 4 percent in 1-1/2 years.
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