ECB should stay vigilant on inflation but avoid hasty rate moves - Stournaras

The European Central Bank must remain vigilant about inflation risks, according to member Yannis Stournaras, without making hasty policy decisions, Bloomberg reported. Speaking at a European finance ministers and central bankers meeting in Dublin, Stournaras noted the absence of wage effects is a positive sign but stressed the need for continual caution.

He highlighted ongoing supply-side shocks, fiscal expansion pressures, and the surge in AI investment as factors warranting caution. ECB officials are currently assessing policy steps to steer inflation back towards the 2% target from its current level above 3%. Following two recent interest rate hikes in response to the Iran conflict, some argue the euro area's economic resilience allows for further tightening, while others warn about the impact on growth.

With the next policy meeting over a month away, Stournaras said upcoming staff forecasts will guide decisions. He indicated an October rate hike could not be ruled out if energy costs rise or September data shows accelerating inflation. However, if uncertainty persists, policymakers could wait for the next forecast round instead of acting hastily.

Financial markets currently expect a quarter-point deposit rate increase to 2.75% next month, with more tightening likely. Stournaras emphasized that shifting data could justify a policy pause, pointing out signs of decelerating activity or a Middle East diplomatic resolution lowering energy prices would weigh against additional hikes.

He also cited the Federal Reserve's recent rate decision as a positive development for global monetary policy credibility.