ECB policymaker signals no rate change in July

By Seo Ji-yeon, The Herald Business

Yannis Stournaras, a member of the European Central Bank's Governing Council and governor of the Bank of Greece, signaled that the ECB is likely to hold its benchmark interest rate steady at this month's monetary policy meeting.

Speaking at the ECB's annual central banking forum in Sintra, Portugal, on Tuesday, Stournaras told Bloomberg that "unless the situation changes dramatically, there will be no change in July," adding that it was appropriate to keep interest rates at their current level for now.

He described the recently reported consumer price inflation rate of 2.8% as "a downside surprise that came in well below expectations."

The ECB raised its benchmark interest rate by 25 basis points last month after determining that inflation risks stemming from the Middle East had increased. It was the bank's first rate hike in roughly two years and nine months, since September 2023.

Stournaras also said inflationary pressures from the Middle East could prove more limited than expected.

Citing discussions with central bank governors from Gulf states, he said energy infrastructure damage had been less severe than anticipated and that Iran was expected to return to the market with a significant volume of crude oil.

That assessment diverges somewhat from the prevailing market view that international oil and natural gas prices would remain elevated for an extended period following the Middle East conflict.

However, Stournaras warned that a drop in oil prices may not feed through to consumer prices right away.

"In Europe, when oil prices go up, prices rise immediately — but when oil prices fall, price reductions tend not to happen as quickly," he said, adding that the indirect spillover effects of the recent energy price shock warranted continued monitoring.

Markets are increasingly pricing in the likelihood that the ECB will hold rates steady for now while assessing the impact of last month's hike alongside developments in the Middle East and the broader inflation outlook.