- The ECB will probably need to hike in June
- The ECB must show commitment to 2% target to stay credible
- Medium-term inflation expectations remain well anchored
- There’s not much evidence of indirect inflation effects
- ECB’s meeting-by-meeting approach is still valid
- Currently I don’t see need to go too far on rates
- 2026 inflation outlook likely to be revised higher
- Projections to show if 1 hike is enough or more needed
The Governor of the Central Bank of Malta and ECB Governing Council member Alexander Demarco said that the central bank will probably need to hike in June to show commitment to its 2% target. The majority of policymakers have been framing the June rate hike more like an “insurance” move rather than something that is really needed. They kind of feel forced to do it.
He mentioned that he doesn’t see the need to go too far on rates, which is certainly in contrast to market’s expectations of almost three hikes by year-end. I think the market got carried away by the hawkish expectations and the ECB is unlikely to validate that. So, the June decision could actually disappoint the market.
