ECB Policymakers Emphasize Vigilant Stance on Interest Rate Risks
ECB Policymakers Weigh Interest Rate Decisions Amid Inflation Concerns
Calls for Vigilance Without Immediate Tightening
FRANKFURT, July 15 (Reuters) - European Central Bank policymakers called for vigilance in setting interest rates on Wednesday but stopped short of advocating for tighter policy, noting long-feared second-round inflation effects had yet to materialise.
Recent Rate Hike and Future Prospects
The ECB raised rates in June and may still pull the trigger again this year, but signals suggest that a second move is not urgent and may not come in July, even as oil prices are rising once again.
Policymaker Statements Ahead of July Meeting
Views from Piero Cipollone and Martin Kocher
Speaking on the last day before the bank goes into a quiet period ahead of the July 23 meeting, board member Piero Cipollone and Austrian central bank chief Martin Kocher each said there was no sign yet of second-round effects.
The ECB can do little to stop oil prices from rising, but interest rate policy can slow or stop the initial inflation shock from seeping into the broader economy, raising inflation expectations and generating undue wage demands.
"At the moment we are paying particular attention to the indirect price effects of the war in the Middle East and possible second-round effects. We currently see no second-round effects, but must also align our monetary policy with inflation expectations," Kocher told German financial newspaper Börsen-Zeitung.
Cipollone, speaking to Ouest-France, made a similar comment, arguing the ECB has not detected a dangerous rise in price growth expectations or increased wage demands.
Market Expectations and Investor Sentiment
Markets had largely priced out a July move when oil prices fell sharply earlier this month and still only see a one in five chance of a hike next week, even after oil prices moved back above $85 a barrel.
Still, investors anticipate two more rate hikes by next spring with a September increase seen as fully priced in.
Geopolitical Risks and Policy Outlook
Impact of Middle East Conflict and Oil Prices
"The renewed outbreak of military conflict in the Middle East and the fresh rise in oil prices underscore that the situation remains extremely volatile and the uncertainty is similarly high," Bundesbank President Joachim Nagel said in an emailed statement.
Maintaining a Vigilant and Cautious Approach
"It remains advisable to react with caution, but to act decisively if necessary," he said. "Monetary policy will maintain its vigilant stance."
(Reporting by Balazs Koranyi; Editing by Peter Graff and Kate Mayberry)
