ECB’s Wunsch says July rate hike possible if inflation persists

ECB policymaker Pierre Wunsch told Reuters ↘0.85% he’d back a July rate hike if services and wage inflation persist beyond the energy shock.yahoo
Chief Economist Philip Lane said the neutral rate ceiling has risen to 2.5%, suggesting room for further tightening without restricting growth, according to Bloomberg.bloomberg
Markets still expect the next hike in September or October, with most ECB governors reportedly favoring a pause at the July 22 meeting.reuters

ECB Officials Signal Possible July Rate Hike After June Rise

European Central Bank policymaker Pierre Wunsch said the ECB could raise interest rates again as early as July if inflation in the euro zone continues to spread beyond energy prices, even as the recent U.S.-Iran peace deal has eased some pressure on oil markets.yahoo

The comments, published Thursday by Reuters, come just over a week after the ECB raised its deposit rate by 25 basis points to 2.25% on June 11 — its first hike since September 2023.europa

Wunsch Keeps July on the Table

Wunsch, who heads Belgium’s central bank, told Reuters that he would “advocate for a second rate hike rather than postponing” if data shows inflation persisting in services and wages, areas not directly tied to the energy shock. However, he added that if incoming information is ambiguous, “I do not see a need for urgency.”yahoo

His stance contrasts with reporting from the day of the June decision, when sources told Reuters that most ECB governors viewed a pause at the July 22 meeting as more likely than another hike, barring a sharp rebound in oil prices.reuters

Lane Raises Neutral Rate Ceiling

Separately, ECB Chief Economist Philip Lane said Thursday at a Deutsche Börse event in London that the upper bound of the central bank’s estimated neutral rate range has “crept up” from 2.25% to 2.5%. The shift implies the ECB could deliver at least one more quarter-point increase without entering restrictive territory.bloomberg

Lane emphasized that his remarks applied to the longer-term endpoint “once the shock has subsided,” and reiterated the ECB’s commitment to remaining “proactive” against elevated inflation.reuters

Inflation Outlook Remains Elevated

ECB Governing Council member Martin Kocher warned Thursday that “prices will stay higher for some time” in the euro area despite the U.S.-Iran memorandum of understanding signed this week, which reopened the Strait of Hormuz and brought Brent crude back toward pre-escalation levels.aljazeera

The ECB’s latest staff projections forecast headline inflation averaging 3.0% in 2026, 2.3% in 2027, and reaching its 2% target only in 2028. Markets currently price a next rate increase in September or October, with a smaller probability assigned to July.dukascopy