- Ready to take monetary policy action at any time if needed
- ECB will do what is needed to bring inflation to 2% in the medium-term
- No second round effects seen currently
The remarks above aren’t anything new. The ECB continues to play for optionality but they have made it clear that they won’t be taking any policy action in July. As such, they are reaffirming that there is no pressure from second round effects in forcing their hand just before the summer break.
The softer inflation numbers for June help to corroborate with that story at least. And that is affording policymakers some added flexibility and comfort in making such a decision.
As for September, it’s a whole different story. Traders are currently pricing in a full 25 bps rate hike by then with ~42 bps of rate hikes priced by year-end. The fact that the US-Iran conflict is heating up again isn’t doing policymakers any favours in fueling the inflation fire for the second-half of the year now.
And all of that is also reflected in higher oil prices again as of late as well as higher bond yields. 10-year yields in Germany moved up to a high of 3.11% yesterday, the highest since end-May. For some context, it fell to as low as 2.83% at the end of June at one point.
This article was written by Justin Low at investinglive.com.
