Aberdeen: ECB remains calm
Felix Feather, Economist at Aberdeen Investments, comments on yesterday's interest rate decision bij the ECB:
'The ECB’s latest decision to keep rates on hold at 2.25% comes as no surprise. Generally, ECB officials prefer to move rates at forecast update meetings, the next of which will be in September.
So this hold could be the first of a period of stability, or the calm before the storm. Which scenario we end up in will hinge on multiple factors, but the most important is how events in the Middle East shake out.
At present, oil prices are sitting near $100/bbl. European gas prices are even more sharply higher. If persistent an energy cost shock of that magnitude would be too great for the ECB to look through – it would hike again in September.
But a de-escalation in tensions could give the ECB the room it needs to remain on hold for the remainder of the year, as signs of the sort of second-round effects that could make the inflation overshoot become entrenched are scant so far.