- The probability of negative scenarios has fallen massively
- Smaller shock reduces risk of second-round effects
- There’s no need for multiple ECB hikes in a rushed way at the moment
ECB policymaker Mārtiņš Kazāks said the probability of severe negative economic scenarios in the Eurozone has declined significantly, suggesting there is less need for the ECB to rush into additional interest rate hikes.
Kazaks noted that risks which previously justified urgent tightening have eased considerably. His comments lean towards a more measured approach from the ECB after oil prices dropped quickly to pre-war levels. With inflation expected to moderate and growth outlook improving, policymakers are increasingly willing to assess incoming data before committing to further rate increases.
The ECB is expected to hold off from additional rate increase over the summer with markets pricing in just a 32% chance of a hike in July. There’s a total of 28 bps of tightening priced in by year-end, with the next hike expected in September at the earliest.
