The European Central Bank will be forced to implement yet another interest rate hike in May in case the ECB’s March economic forecasts regarding inflation prove to be correct, says the chief economist of the European Central Bank, Philip R. Lane.
The interest rates in the euro area have been hiked by 3.5% over the entire period of the recent monetary tightening. The next meeting is scheduled for May. In the meantime, the ECB released no further statements regarding its plans, citing the fact that the turbulence currently observed in the financial sector requires extreme caution.
During his speech on Thursday, Philip Lane stressed that rate hikes in May would be advisable if the economy followed the baseline forecasts. He also added that it was important to watch whether this would remain relevant until the next meeting.
Market players are currently assessing the likelihood of a 25 basis point increase in the 3% deposit rate on May 4 while expecting another 25 basis point hike by mid-year. This is a weaker forecast compared to the expectations formed a month earlier.
Largely repeating his stance, Lane claimed that the May decision would depend on the inflation forecast, the bank's assessment of underlying price dynamics, and how quickly previous rate hikes would affect the economy.
Although banking stocks plunged by about a tenth over the past month, volatility has declined. At the same time, the core inflation rate which is a cause of major concern for policymakers continues to gather pace which, in turn, provides a stronger argument in favor of rate hikes.
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