MNI ECB WATCH: ECB Likely To Hold, Await More Data In June

The European Central Bank is set to hold its key deposit rate at 2% on Thursday for a seventh consecutive time, with the June meeting likely to provide more clarity on the consequences of the Iran conflict together with a fresh round of projections. (See MNI SOURCES: Ceasefire Reduces Urgency Of ECB Hike Talk ).

While some policymakers had suggested that an interest rate increase in April might be appropriate, the ceasefire in the Gulf strengthened the position of those who favoured a pause this week. Bank of Greece Deputy Governor Theodore Pelagidis told MNI that would it best to wait to assess how rapid geopolitical developments feed into prices, while Bank of Portugal Governor Alvaro Santos Pereira noted that the inflation backdrop was tamer than that prior to the invasion of Ukraine. (See MNI INTERVIEW: Tariff War Pushes Up Inflation- ECB's Pelagidis and MNI INTERVIEW:Pereira Says ECB Keeps Cool Head, Data Dependent) 

Data this week from the ECB’s Banking Lending Survey, Survey on the Access to Finance of Enterprises, and Consumer Expectations showed a slight tightening of financial conditions along with significantly higher household inflation expectations in March as the fallout from higher energy prices weighed on sentiment.

Lower risk tolerance was a key contributing factor to tightening standards for loans, "with banks indicating that geopolitical and energy developments exerted tightening pressure." Some banks reported additional tightening related to exposures to energy-intensive firms and to the Middle East.

COMMS FOR JUNE

President Christine Lagarde is likely to insist on the continuation of the ECB’s meeting-by-meeting, data-dependent approach to setting policy, after having noted after March’s decision that the impact of the conflict posed upside risks to prices and downside risks to growth. She also pointed to the risk that memories of recent inflation spikes could make expectations more responsive this time.