LONDON, April 30 (Reuters) – The European Central Bank left interest rates unchanged as expected on Thursday but signalled its rising concerns over soaring inflation, bolstering bets it would lift rates several times this year with an initial move in June.
The euro was last $1.169, little changed from where it stood before the ECB statement.
Two-year bond yields across the bloc remained lower on the day with German yields last down 6 basis points at 2.65%. European shares edged higher and were last up almost 1% on the day.
Money markets fully price in at least two ECB rate hikes by year-end, and currently see a third move as likely but not certain.
COMMENTS:
ARNE PETIMEZAS, DIRECTOR RESEARCH, AFS GROUP, AMSTERDAM:
“Nothing new in the governing council statement except for stating the obvious: that the shock is worse than expected in the base case scenario from March, and that we’re likely in the adverse scenario. The real kicker will be the press conference, where I expect Lagarde will hint at a June hike.”
FELIX SCHMIDT, SENIOR ECONOMIST, BERENBERG, FRANKFURT:
“As expected, no rate hike. The ECB statement is very brief and contains few surprises. The economic data released today does not yet warrant a rate hike. Economic growth is weaker than expected, and whilst inflation is rising, it has lost some momentum. So far, inflation has been driven solely by the direct effects of energy prices. The ECB will wait to see how significant the indirect effects turn out to be in the coming months. The ECB will keep all options open.”
APOLLINE MENUT, ECONOMIST, CARMIGNAC, PARIS:
“In my mind, it’s pretty clear that the ECB has shown a more hawkish reaction function. Even when they started to communicate around after the Iran war, around the March meeting, they had a tremendous amount of work providing a clear framework with their scenarios. There was an implicit amount of hikes behind any scenario, depending on oil and gas prices.”
“My sense is that given these developments in oil prices, we are between the baseline and their adverse scenario. Our view is that it’s the current economic situation when you look at the data where you clearly see stagflation is back because, I mean, soft data and hard data are not really good.”
CARSTEN BRZESKI, GLOBAL HEAD OF MACRO, ING
“As stagflationary pressures in the eurozone increase, the ECB has decided to keep interest rates on hold. In its policy statement, the ECB acknowledged rising inflationary pressures but also more downward risks to growth. The policy statement didn’t give any hint at the next steps. It looks as if the ECB is in no rush to hike.”
ANDREW KENNINGHAM, CHIEF EUROPE ECONOMIST, CAPITAL ECONOMICS
“President (Christine) Lagarde is likely to keep her cards close to her chest in the press conference, (at 1245 GMT). But it will be interesting to see whether she pushes back at all against current market pricing which suggests that a June rate hike is a near-certainty and that there will be three hikes in total this year. With the price of Brent crude well above $100 per barrel, a rate hike in June would certainly not be a surprise.”
MARCHEL ALEXANDROVICH, EUROPEAN ECONOMIST, SALTMARSH ECONOMICS, LONDON
“As expected, the ECB keeps interest rates unchanged and continues to flag up the upside risks to inflation which could trigger a policy response. Given all the uncertainties, the Governing Council is not pre-committing to a June move. But it appears to be leaning toward some tightening in policy.”
IPEK OZKARDESKAYA, SENIOR ANALYST, SWISSQUOTE:
“For the ECB, rates are left unchanged as expected, yet the policy path will remain highly data dependent. We got earlier this morning the confirmation of higher inflationary pressures weighing on growth.
Depending on the trajectory of energy prices, the ECB could be brought to hike rates in the second half, but the extent of the policy response will depend on whether the early rise in energy prices spirals into salaries and broader inflation.”
(Reporting by the London and Gdansk markets teams; Compiled by Dhara Ranasinghe, editing by Alun John)
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