ECB Governing Council member Christodoulos Patsalides said the rate hikes embedded in the central bank's own projections carry no obligation to deliver them, and that he saw no justification for tightening at last week's meeting. He warned that persistent oil prices are steadily raising the risk to inflation, and he has not yet decided how he will vote in September. Markets price a 65% chance of a hike at that meeting.
The ECB is not committed to future rate hikes simply because they are embedded in the market yield curve used for its projections, Governing Council member Christodoulos Patsalides told Econostream. Policy decisions, he stressed, are not constrained by market assumptions and will always depend on the latest economic data and risk assessment. He saw no justification for raising interest rates at last week's meeting, with inflation broadly in line with the ECB's projections, inflation expectations well anchored, and little evidence of second-round effects or excessive wage growth.
Oil prices shift the balance toward pre-emptive action
However, Patsalides warned that the risk to inflation is steadily increasing as elevated oil prices persist. The longer energy prices remain high, the more likely they are to feed into other goods and services, making inflationary pressures broader and more persistent.
According to Investinglive, he said "the passage of time works against us", with upside inflation risks accumulating every day the energy shock continues. Higher prices may already be filtering into part of the economy that is not easily observed.
Although he acknowledged that the September meeting remains fully data dependent, Patsalides suggested that the value of acting pre-emptively increases as inflation risks build. Policymakers still need evidence before tightening policy, yet they cannot necessarily wait until all second-round effects become clearly visible, because monetary policy must stay ahead of inflation.
Patsalides has not decided his September vote
He has not yet decided how he will vote in September, and said the Governing Council will closely monitor incoming data — evidence of second-round effects, inflation expectations, wages, purchasing managers' indexes and the transmission of higher oil prices through the economy. Patsalides described the current stance as neutral to restrictive and believes interest rates are at the appropriate level, while acknowledging that this assessment could change if inflation risks continue to intensify.
Patsalides also opposed returning to forward guidance, arguing that public commitments about the future path of interest rates would reduce the ECB's flexibility and credibility during a period of elevated uncertainty. The market is currently pricing in a 65% chance of a rate hike at the September meeting and a total of 37 bps of tightening by year-end.
Source: Investinglive
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