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(Bloomberg) — The European Central Bank may be able to keep interest rates unchanged at its next meeting if the situation in the Middle East doesn’t escalate in the meantime, according to Governing Council member Primoz Dolenc.
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A pause in July could be warranted if energy costs stay near current levels, commodity-market gyrations don’t spread further and second-round effects don’t appear, Dolenc said Tuesday at the ECB’s annual forum in Sintra, Portugal.
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“I do not believe there is any urgency to consider further policy tightening if oil and gas prices remain subdued,” he said. “Based on the data available today, a wait-and-see approach until September could be appropriate.”
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Policymakers are studying how US-Iran peace talks and a drop in energy prices are affecting euro-zone inflation. The ECB raised rates this month for the first time since 2023 and markets see another quarter-point hike by year-end.
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Some officials speaking in Sintra have signaled that the price shock triggered by conflict isn’t over and that it remains to be seen how months of elevated energy costs will ripple through the economy.
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With several weeks still until the next policy decision and markets still volatile, Dolenc warned that circumstances can change quickly. The Slovenian central banker also cautioned that the geopolitical backdrop hasn’t fully calmed down.
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“We have seen over the past few days that hostilities have resumed,” he said. “While everyone hopes for a lasting resolution, I do not believe the conflict will be resolved anytime soon. As a result, uncertainty remains elevated.”
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Dolenc said he wouldn’t read too much into the latest inflation numbers, which revealed slower price gains in the euro zone’s biggest three economies.
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“We will need further evidence to be confident that inflationary pressures are easing on a sustained basis,” he said. “A renewed policy response could become warranted if oil prices were to rise significantly above the assumptions underlying our projections in early June.”
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