FRANKFURT, July 9 (Reuters) – European Central Bank policymakers gathering last month were presented with projections showing inflation staying above target into next year despite nearly three ECB interest rate hikes, accounts of the meeting showed on Thursday.
The ECB raised rates at the June 10-11 meeting and investors expect it to do so twice more over the next year to contain the fallout from the Iran war on energy prices.
“Headline inflation was set to rise further over the summer and remain well above target into the first half of 2027, despite almost three 25-basis-point interest rate hikes being embedded in the projections,” the ECB said in its account of the June 10-11 meeting.
Traders have ramped up their bets on ECB hikes again in recent days on signs that an agreement between the United States and Iran to end the war is in jeopardy.
An unexpectedly rapid retreat in energy prices following that deal had taken pressure off the ECB to lift rates again at its next meeting on July 22-23, but the case for a hike later on remained firm, sources told Reuters last week.
Even before the recent rise in tensions between the U.S. and Iran, ECB board member Isabel Schnabel had been warning that the euro zone economy was not back to its pre-war state as core inflation remained strong and price pressures continued.
In June, policymakers decided to keep their options open so as to be able to react to different scenarios in the Middle East.
“Communication should remain neutral, neither suggesting that the current decision was the first of a sequence of hikes to come nor that it was a one-off move,” the ECB said in the account.
The ECB’s deposit rate is currently at 2.25%.
(Reporting by Francesco Canepa; Editing by Sharon Singleton and Andrew Heavens)
Comments