ECB’s Wunsch said he would support another 25 bps hike if inflation data continues to come in stronger than expected, particularly after the recent rise in Eurozone services inflation. He said persistent upside surprises in inflation would justify further tightening as a precaution, though he added there is no need to rush into another move if the data remains mixed or unclear.
Wunsch defended the ECB’s latest rate increase, arguing that the central bank had not made a mistake by hiking while inflation was rising and uncertainty remained elevated. He noted that real interest rates had actually declined slightly and stressed that the ECB still has room to cut rates later if inflation pressures ease.
He also acknowledged that easing geopolitical tensions involving Iran and moderating wage growth could strengthen the argument that the ECB might have been able to look through the recent energy-driven inflation spike. Still, he maintained that last week’s decision was justified given the information available at the time.
Wunsch also called for clearer communication from the ECB, suggesting the bank should offer more explicit guidance on how future policy decisions depend on incoming data and geopolitical developments rather than relying solely on its standard meeting-by-meeting approach.
The market is currently pricing in 36 bps of tightening by year-end with 67% chance of a rate hike in September.
