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(Bloomberg) — The European Central Bank will need to raise borrowing costs in June as long as there’s no significant improvement in the outlook for consumer prices, Governing Council member Joachim Nagel said.
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While it was prudent to not tighten monetary policy last week to gain greater clarity on the fallout from the Iran war, this “vigilant wait-and-see approach should not be confused with hesitation,” the Bundesbank president said Monday in Frankfurt.
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Referring to new ECB projections available next month — alongside more news on the situation in the Middle East — he said that “if the inflation outlook does not improve markedly in those projections, this would argue for an interest-rate hike,” echoing comments from last week.
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“We are aware of the risks to price stability and stand ready to act at any time,” Nagel said. “The Governing Council has proven that it acts decisively when necessary.”
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The ECB last Thursday kept borrowing costs unchanged while signaling that a rate increase will be considered at the June 10-11 meeting. That’s in line with economists’ and investors’ expectations, with the latter seeing two moves beyond that before year-end.
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Speaking earlier Monday, Nagel’s Slovak counterpart Peter Kazimir struck a similar tone, arguing that a rate increase is “all but inevitable.” Others, however, were more cautious, with Greece’s Yannis Stournaras describing the risk of a recession as “real.”
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A much weaker economy could alleviate dangers that the energy shock spills over into broader inflation through wages and selling prices.
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Nagel said Monday that the ECB can’t prevent the sharp rise in energy costs, but can influence the medium-term trajectory of price growth.
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“The longer the conflict drags on, the greater the risk that inflation will remain elevated if monetary policy does not take action,” said Nagel, who highlighted March’s rise in medium-term consumer inflation expectations to 3% from 2.5%.
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