FRANKFURT (Reuters) – The European Central Bank will need to raise interest rates again in May if inflation develops along the path seen in the bank’s March economic projections, ECB chief economist Philip Lane told the Cyprus News Agency.
The ECB has raised rates by a combined 350 basis points since July but did not provide specific guidance for its May 4 meeting, arguing that turbulence in the financial sector required extra caution.
“If the baseline we developed before the banking stress holds up, it will be appropriate to have a further increase in May,” Lane was quoted on Thursday as saying.
“However, we need to be data-dependent about the assessment of whether that baseline still holds true at the time of our May meeting.”
Markets have fully priced in a 25 basis point increase in the 3% deposit rate on May 4 and see another 25 basis point move by mid-year, a downgrade from a month ago, when twice as many rate increases were expected.
Largely repeating his stance, Lane argued that the May decision will depend on the inflation outlook, the bank’s assessment of underlying price dynamics and on how quickly past rate hikes are impacting the economy.
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Although bank shares are down by about a tenth over the past month, volatility has receded and underlying inflation, a key worry for policymakers, continues to accelerate, strengthening the case for rate hikes.
(Reporting by Balazs Koranyi; Editing by Hugh Lawson and Christina Fincher)