ECB: Rate hike risks rise as inflation watched – Societe Generale

Societe Generale analysts comment on the latest Reuters European Central Bank (ECB) poll showing more economists now expect at least one rate increase this year, though a majority still see no move. They highlight President Lagarde’s readiness to hike if inflation pressures from the Iran conflict intensify, while stressing it is still early to act as policymakers gauge the energy-driven shock.

Lagarde keeps options open on policy

"In the latest Reuters ECB poll published yesterday, the number of economists forecasting at least one rate increase this year rose to 21 from 3 in March. Out of a pool of 60, that’s still 39 economists or 65% who do not expect the bank to raise rates which seems elevated considering the repricing of the money market curve over the past three weeks."

"President Lagarde yesterday signalled that the bank is ready to raise rates at any meeting if inflation pressures from the Iran conflict intensify. In her view, it is still too early to act, with policymakers assessing the scale and persistence of the energy-driven price shock. "

"Lagarde highlighted that the ECB cannot influence energy prices directly and will instead monitor spillovers to core inflation, wages and price expectations."

"Nagel chipped in with hawkish comments this morning, adding to the bear flattening momentum in 2s/10s and 5s/30s. Spreads have basically completed the reversal to the levels of last March when Germany loosened the debt handbrake and announced the fiscal bazooka, targeting spending in defense and security. The 5y5y inflation swap closed yesterday at 2.12%, the lowest since 4 March."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)