- No need to rush into any decision amid latest decline in oil prices
- It would be prudent not to rush into policy action
- Lower energy prices should quickly feed into lower price expectations and keep wage pressures down
- ECB can wait until next projections to decide if more tightening is needed
- Only case for more rate hikes would be tied to second-round effects or deanchoring of inflation expectations
- But we’re seeing none of these at the moment
- It’s worth remember that even the milder scenario of the latest projection included more policy tightening
- So if that path is confirmed, a further rate hike may still be needed
This just adds to the case for a further pause through the summer at the very least. The ECB will then use the next few months to reassess things in September before really deciding on anything else with regards to policy/rates.
The latest inflation data for June also rebuffs that expectation, with the figures for Germany, France, and Italy yesterday not delivering any negative surprises. So, that will afford the ECB the flexibility to maintain the status quo in July before the summer break.
As things stand, traders are pricing in the next 25 bps closer to the October meeting (~24 bps priced now) with there being ~28 bps of rate hikes priced by year-end.
