By Balazs Koranyi
WASHINGTON, April 16 (Reuters) – European Central Bank policymakers played down the chance of a rate hike as soon as this month, arguing that more data will be needed and the precise timing of a move was of secondary importance in any case.
Inflation surged past the ECB’s 2% target last month on rising energy costs and the ECB is now debating whether to tighten policy to prevent this energy shock from seeping into the broader economy and setting off an inflation spiral.
“We will do what is needed,” ECB chief economist Philip Lane said on Thursday. “I know you care if it’s going to be one meeting or another meeting, but in the grand scheme, which meeting it turns out to be that we make the decision… that’s detail.”
French central bank chief Francois Villeroy de Galhau, a powerful voice on the ECB’s 27-person Governing Council, was even more explicit.
“To bet on April would be premature at this stage,” he told CNBC. “We need to reach a sufficient level of data about the effect on underlying inflation and also the negative effect on demand.”
Financial markets have pared back their bets on a hike in April and now see just a one in five chance, even if a hike is fully priced in by July, to be followed by a second move towards the end of the year.
Staying put in April would not reduce the need to act later and Latvian central bank chief Martins Kazaks said market bets were not far-fetched.
“I find those expectations to be reasonable,” Kazaks told Reuters on the sidelines of the International Monetary Fund and World Bank spring meetings. “One move of 25 basis points wouldn’t do much more than signalling.”
But he, like his Estonian colleague Madis Muller, acknowledged that there has been little evidence that energy inflation is creating second-round effects, a key condition for policy tightening.
“It would also take some time for broader inflationary pressures to take hold,” Muller said. “It might therefore be difficult to tell by the end of April if we need to be concerned about it.”
While none of the policymakers who spoke on or off record ruled out a rate hike in April, many said it would require a significant deterioration in the outlook.
“So far, inflation expectations are quite well anchored,” Maltese central bank chief Alexander Demarco said. “We need to be patient, not rush any decision and see what the data tells us.”
(Reporting by Balazs Koranyi; Editing by Toby Chopra and Andrea Ricci)
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