ECB chief economist: September will be the next critical point in interest rate policy

The Zhitong Finance App learned that ECB chief economist Philip Lane said that the ECB will re-evaluate and possibly adjust its monetary policy position in September. Lane said at a forum held in Donegal, Ireland on Friday that when calibrating interest rate policies, policy makers will respond based on the latest published data. He believes that the Eurozone economy is mainly supported by domestic demand, and said that the US is not the dominant force in global trade. In response to how the ECB is dealing with the current geopolitical challenges, Lane said, “Our job is more about responding.” He added that the ECB's response would be “neither overreaction nor underreaction.”

On Thursday, the ECB kept the deposit mechanism interest rate unchanged at 2.25%, in line with market expectations. After implementing the first rate hike in nearly three years in June, the ECB is now on hold to buy more time to assess the impact of the escalation of the Middle East conflict on inflation and economic growth in the Eurozone. ECB President Lagarde revealed after the interest rate meeting that the current meeting did discuss interest rate hike options, but in the end they agreed to stay on hold. Part of the reason is that this round of soaring energy prices has not yet triggered an obvious second round of inflation.

Although ECB officials are privately prepared to raise interest rates again in September, they have refrained from making any prior promises in public statements. Bundesbank President Joachim Nagel, Bank of France Governor Emmanuel Mullan, and Bank of Estonia official Ulo Kasich all said that the June rate hike was an important step to push inflation back to the 2% target, and called for patience and wait for more economic data and the latest forecasts. Nagle said on Friday that the ECB is currently in an advantageous position to meet the challenges brought about by soaring energy prices, and stressed that before deciding whether to raise interest rates in September, the influx of economic data during the period should be fully assessed. Bank of Austria Governor Martin Koch said that the ECB's choice at that time will be between “continuing to raise interest rates” or “keeping interest rates unchanged.”

Ryan declined to disclose his tendencies. He said, “We will meet again in early September. With every meeting, we re-evaluate, adjust, and calibrate our policies.” Lane described the current situation as a “moderate shock,” and said that future trends will largely depend on whether oil and gas prices will remain high until September, or whether a lasting solution can be found to restore normal energy supply in the Strait of Hormuz.

Various data released on Friday showed some positive signs of inflation and economic growth prospects in the Eurozone. An indicator measuring private sector economic activity in the Eurozone rose to a five-month high. Meanwhile, an ECB survey showed that consumer expectations of recent price increases have declined markedly.

Meanwhile, after US President Trump threatened to implement new tariff measures, market concerns about global economic growth heated up again, and international oil prices fell after breaking through $100 per barrel for a while. However, Ryan doesn't seem too concerned about this. “Trade between Europe and the US is important, but it's not the main issue,” he said. “Europe trades with countries around the world, and the US is not a dominant factor in international trade.”