Goldman Sachs: ECB Chatter - FJElite

Inflation risks still to the upside. ECB officials have stressed that risks for inflation remained to the upside since the resumption of military conflict in the Middle East. And while some policymakers—such as National Bank of Belgium Governor Wunsch—had welcomed the earlier decline in energy prices, most rate setters— including Executive Board member Schnabel—had pointed to ongoing pipeline inflation pressures. At the same time, all speakers on the record—most recently, Austrian National Bank Governor Kocher—maintained that they were not seeing signs of second-round effects in wage growth or inflation expectations.

July hike not in play, but further tightening to come. No one on the Governing Council explicitly called for a July rate hike. Bundesbank President Nagel, in particular, called for reacting with “caution” to the renewed increase in energy prices. That said, most policymakers had already been eyeing further policy tightening before the resumption of military conflict in the Middle East. Schnabel, for instance, had called for interest rates to rise further at the end of June and recently reiterated that the current shock “[could not] be simply looked through”. Other officials—such as Central Bank of Slovenia Governor Dolenc, Bank of Estonia Governor Kaasik, and Central Bank of Malta Governor Demarco—had also pointed to further tightening to come.

Higher upper-end for the neutral range. Several policymakers referred to recent ECB staff analysis that had shown the upper-end for the neutral policy rate range increasing to 1.75-2.50%, from 1.75-2.25% previously. Although ECB President Lagarde underlined that this neutral range did not guide the Council’s near-term decisions, ECB Chief Economist Lane explained that it would be “relevant for the endpoint” of the policy rate once the energy shock subsided.