ECB’s Simkus: Too early to say what we’ll must do in April

• Too early to say what we’ll need to do in April
• Caution needed on interest rates as situation is changing
• We see rising consumer inflation expectations, but I wouldn’t overplay that
• It’s important to maintain credibility
• ECB has shown it’s an institution that can deal with an inflation shock with decisive action

ECB’s Simkus has emphasized a cautious stance regarding future monetary policy meetings, suggesting that it remains premature to determine the bank’s next step for the upcoming April meeting. His remarks highlight the unpredictability of the US-Iran war and the inflationary impact on the Eurozone economy.

The Lithuanian central bank governor stressed that the current situation is changing rapidly, necessitating a flexible, data-dependent approach rather than a pre-committed path. The ECB grapples with a complex mix of upward risks to inflation, primarily driven by volatile energy prices linked to conflict in the Middle East, and simultaneous downward risks to economic growth.

While the ECB recently held interest rates steady, Simkus noted that the odds of a cut or a hike in the near future could be viewed as balanced, given the uncertainty of how recent shocks will transmit through the economy. By remaining non-committal on April’s outcome, Simkus is reinforcing the Governing Council’s strategy of monitoring incoming economic indicators and financial data in real-time. This “meeting-by-meeting” approach is intended to ensure that the bank can respond more effectively.

The market is pricing in a total of 72 bps of tightening by year-end with a 61% chance of a rate hike in April.