European Central Bank Governing Council member Pierre Wunsch said on Wednesday that the ECB will probably have to raise rates again. He spoke to Bloomberg Television on the margins of the International Monetary Fund’s annual meeting in Bangkok. The ECB has already raised rates twice this year to curb inflation driven by energy prices that rose after the Middle East conflict. Our market data shows the ECB main refinancing rate at 2.50 percent as of 12:24 GMT.
Wunsch said markets are pricing in further tightening, which he called a reasonable baseline in an extremely uncertain world. He would not forecast the timing, given energy market conditions and uncertainty around artificial intelligence. Asked whether a hike would come in October or December, he gave an evasive answer. Investors expect the deposit rate to reach 2.75 percent, with the next move priced for December.
Lagarde urges caution on second-round effects
ECB President Christine Lagarde said the bank is not yet seeing inflation spread across the economy. She said policymakers must be extremely cautious. Monetary policy is data-dependent, she said, and decisions are made meeting by meeting.
Lagarde said ECB staff are examining indirect inflation effects and possible second-round effects, such as accelerating wage growth.
Bond yields and the TPI backstop
The steep rise in French government bond yields drew attention to the ECB’s Transmission Protection Instrument. Created in 2022, it allows unlimited government bond purchases in cases of unjustified market moves. Wunsch said the instrument is available, but activation conditions are probably not met. He said the French yield rise is partly due to a political deadlock over the budget. The French presidential election is next year.
Bank of France Governor Emmanuel Moulin said rising bond yields alone tighten financial conditions. Philip Lane, the ECB’s chief economist, said a moderate policy response may be enough to restore price stability.
Source: European Central Bank
