ECB may not have rate-hike evidence by April 30 meeting, policymaker says

WASHINGTON: The European Central Bank may not have all the data this month to determine if interest rates will have to be raised to tame an inflation surge and the June meeting will offer a greater body of information, Estonian policymaker Madis Muller said.

Euro zone inflation jumped to 2.5% last month as the war in the Middle East pushed up energy costs, and policymakers are now debating if they need to tighten policy to prevent this jump from setting off a self-reinforcing price spiral.

The ECB needs to be ready to act to prevent these second-round effects from taking hold, but the April 30 policy meeting may be too soon to have evidence of such impacts, Muller argued.

“At this point there is no hard data on that yet,” he told Reuters on the sidelines of the IMF and World Bank spring meetings in Washington.

“It would also take some time for broader inflationary pressures to take hold.”

“It might therefore be difficult to tell by the end of April if we need to be concerned about it,” he said.

A rate hike in April, however, cannot be ruled out and the ECB needs to keep its options open, since unexpected twists and turns in the war could fundamentally alter the outlook, he added.

“For example, something could go terribly wrong with the peace negotiations,” Muller said.

“The duration of the war is the biggest unknown that will drive energy prices and will have broader implications for growth and inflation.”

He added that it would be a mistake for the ECB to simply assume that the inflation shock will be short-lived and temporary.

Financial markets now see a one-in-five chance of an ECB rate hike this month, but a move by June is nearly fully priced in and a second hike in the autumn is also expected.

Policymakers told Reuters on Wednesday they were wary about raising interest rates as soon as this month, as they have yet to see firm evidence that an energy-induced inflation shock is becoming broad-based or entrenched.

“By June we will have a lot more information. We’ll have additional inflation figures, more hard data, new projections, and better indication for the development of inflation expectations,” Muller said.