Lagarde Says ECB Doesn't Need to Be Aggressive Yet
European Central Bank (ECB) President Christine Lagarde emphasized that the central bank doesn't yet need to take a more aggressive policy response to the impact of the Middle East conflict. According to her, although inflationary pressures in the eurozone remain above target, long-term inflation expectations remain relatively contained and show no signs of a dangerous escalation.
Lagarde stated that households do expect faster consumer price increases in the short term. However, over the longer term, inflation expectations remain stable. This condition gives the ECB confidence that inflation can return to its 2% target in the medium term, as long as monetary policy remains appropriate and proportionate.
This statement is important as the market assesses whether the ECB will continue to raise interest rates after previously tightening policy. Investors still expect at least one 25 basis point rate hike this year, with the deposit rate potentially rising towards 2.5%. However, following Lagarde's statement, market participants have begun to slightly reduce expectations for additional interest rate hikes.
From a fundamental perspective, inflationary pressures in the eurozone have not yet fully subsided. Headline inflation remains above 3%, while core inflation, which excludes energy and food, has also strengthened. This indicates that price pressures are not solely stemming from energy, but are beginning to spread to other components such as services and wages. Therefore, the ECB remains vigilant about the potential knock-on effects of rising prices.
However, the decline in oil prices to below US$80 per barrel following progress in negotiations between the United States and Iran has helped ease some of the pressure on policymakers. If energy prices continue to fall, inflationary risks from production and transportation costs could also diminish. This could give the ECB room to be less aggressive in raising interest rates.
However, Lagarde emphasized that the situation remains fragile. The ECB must remain flexible and ready to adjust policy if shocks from the Middle East worsen. In other words, the European Central Bank has not closed the door to further interest rate hikes, but for now, it is opting for a more measured approach while awaiting developments in inflation, energy prices, and geopolitical stability. (arl)
Source: Newsmaker.id
