Lower Oil Prices Reduce Immediate Action Pressure for ECB, Dolenc Reports
ECB Policy Decisions Influenced by Energy Market Developments
Energy Prices and ECB's Breathing Space
SINTRA, Portugal, June 30 (Reuters) - An unexpectedly quick retreat in energy prices has given the European Central Bank breathing space and could allow it to wait for fresh economic projections in September before deciding its next move, Slovenian central bank governor Primoz Dolenc said.
The ECB raised interest rates in June to prevent an energy-driven inflation shock from spreading through the economy, and policymakers are now debating whether to follow up with another hike in July or September.
Recent Energy Market Trends
"The latest developments in the energy market are more benign than it was expected just a few weeks ago," Dolenc told Reuters on the sidelines of the ECB Forum on Central Banking in Sintra, Portugal, on Tuesday.
"If this environment persists and energy prices stay around this level, then the pressure on us to act will ease and we could afford to wait until fresh projections in September to decide on the appropriate policy calibration," he added.
Data-Driven Decisions and Market Volatility
However, Dolenc said the ECB would base its decision on incoming data and cautioned that the outlook could still change before the July meeting given elevated market volatility.
ECB Projections and Oil Price Assumptions
The ECB's June 11 projections assumed oil prices would remain high for years, but current market pricing is already below even the bank's milder scenario for the rest of this year.
Inflation Risks and Policy Outlook
Second-Round Effects and Inflation Monitoring
One reason the ECB may be able to wait is that inflation data has yet to show clear evidence that higher energy costs are feeding through to the broader economy via second-round effects.
Such a broadening of price pressures remains a risk and requires close monitoring, Dolenc said.
Potential for Further Policy Tightening
A further retreat in energy costs could ease price pressures even more, but additional policy tightening further down the road is still on the cards, Dolenc said.
Scenarios for Future ECB Actions
"A scenario in which we do not need to tighten policy further could be possible if energy prices were to decline further, second-round effects failed to materialize, and some of the existing indirect effects of the recent energy shock gradually dissipated," Dolenc said.
"However, this is not my baseline scenario," he said. "The conflict has triggered an energy shock that remains unresolved, and therefore further price volatility should be expected."
(Reporting by Balazs Koranyi. Editing by Mark Potter)
