- ECB is well positioned to be vigilant for the next couple of weeks
- I don’t see any hard evidence of second-round effects
- ECB will act if inflation outlook deteriorates
- Recent developments in oil markets are concerning
- Growth forecast isn’t great, but I don’t see a recession
The ECB left all three key interest rates unchanged yesterday, opting to assess incoming data after an extended tightening cycle. However, policymakers stressed that uncertainty surrounding energy prices remains elevated and that they are closely monitoring whether the recent rise in oil prices feeds into broader inflation pressures.
Kocher echoed those concerns, saying the ECB is “well positioned to be vigilant for the next couple of weeks” as policymakers evaluate the impact of recent developments in energy markets.
While acknowledging that oil price developments are “concerning,” he emphasized that the Governing Council has yet to see convincing signs that higher energy costs are spilling over into wages and broader prices.
The comments are consistent with the ECB’s current data-dependent approach. Officials are focused on preventing a renewed energy shock from becoming embedded in underlying inflation through higher wages or stronger pricing power among businesses.
Kocher also offered a relatively balanced assessment of the economic outlook. He acknowledged that growth prospects remain weak, stating that “the growth forecast isn’t great,” but stopped short of predicting a downturn, adding that he does not see a recession.
His remarks fit with the ECB’s broader narrative that the euro-area economy is expanding only modestly but remains resilient enough to withstand restrictive monetary policy should additional tightening become necessary.
Notably, Kocher’s comments came after the usual post-meeting media leak citing people familiar with the matter indicated that the Governing Council is ready to raise interest rates at its September meeting unless the euro-area inflation outlook improves markedly over the coming weeks. The report suggests that, despite yesterday’s decision to pause, policymakers continue to view another hike as the most likely outcome if incoming inflation data or energy-related developments worsen.
The probabilities for a rate hike in September currently stand around 72%. The ECB will need a de-escalation in the Middle East and benign inflation data to hold rates steady in September.
This article was written by Giuseppe Dellamotta at investinglive.com.