ECB Signals Further Tightening: "Rate Hike Possible in July If Needed"

Immediately after the European Central Bank (ECB) raised its policy rates for the first time in two years and nine months, an ECB official suggested that another rate hike could follow in July.

Joachim Nagel, President of the Deutsche Bundesbank and a member of the ECB Governing Council, told Bloomberg on June 12 (local time), "We have kept all options open and are prepared to act again if necessary," adding, "A data-dependent, meeting-by-meeting approach remains appropriate."

Nagel, who is considered a hawk, argued that the rise in energy prices is having a spillover effect on inflation in other sectors. He maintained that the ECB’s rate hike the previous day was inevitable, even if the situation regarding the war in the Middle East were to calm down quickly.

The ECB raised its three key policy rates, including the deposit rate, by 0.25 percentage points (p) the previous day.

The ECB is the first central bank among major economies to raise interest rates since the outbreak of the war in Iran at the end of February.

The market currently expects the ECB to raise policy rates by 0.25 percentage points each in September and December.

However, even after the rate hike the previous day, there remains skepticism that such measures will have a limited effect in curbing inflation caused by energy supply shortages.

The ECB was previously criticized for being too slow to raise interest rates during the surge in inflation caused by the war in Ukraine, which began in 2022.

Conversely, there are concerns that if the ECB rushes to raise rates to avoid such criticism this time, it could further dampen the economy of the Eurozone, the 21 countries that use the euro.

Following the 2008 global financial crisis, the ECB raised policy rates in 2011 due to inflation concerns as the economy was showing signs of recovery. This led to the Eurozone economy falling back into a downturn after a brief period of recovery.

Davide Oneglia of the financial research firm TS Lombard stated, "The ECB seems focused on proving its credibility," adding, "The 2011 rate hike was a clear mistake, and the repetition of such a situation is the biggest risk we face."

(Photo: AP, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.