ECB policymakers reportedly wary of April rate hike as there is no evidence yet of second round inflation effects, according to Reuters citing sources
- Second-round inflation effects are still possible and policy tightening remains firmly on the table but concrete evidence is needed before policymakers act, the sources said.
- Another source said that they cannot say what they will do at the next meeting, but currently does not have enough evidence to support a hike.
- Sources said labour markets are relatively soft which is limiting workers' room to demand higher wages.
- A source also highlighted that long term inflation expectations remain stable, domestic inflation is slowing, and rising petrol prices is hitting disposable incomes, which limits company ability to lift prices.
- Another source warned of credibility concerns. If inflation remains high and the ECB does noting, ECB commitment could be doubted.
Context
The ECB's caution regarding a potential rate hike in April indicates a careful approach to monetary policy amid lingering inflation concerns. Policymakers are emphasizing the need for concrete evidence of second-round effects before proceeding, signaling that while tightening remains an option, economic conditions, particularly in labor markets and inflation expectations, are not yet supportive. This could impact market expectations for future rates and the euro's trading outlook as investors assess the balance between inflation risks and the ECB's credibility.
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