Is Their Hawkish Rhetoric Meant To Signal A Rate Hike, or Just Manage Inflation Expectations?
With inflation pressures building rapidly and various ECB policy makers issuing hawkish commentary, the markets believe a rate hike by the central bank is essentially guaranteed in July. However, growth throughout the Euro-zone is slowing, as recent data has shown investor and consumer sentiment turning more pessimistic while business activity in the manufacturing and services sector has contracted. Clearly, the downside risks for the Euro-zone economy loom large, but with price stability being the primary mandate of the ECB, a rate hike may very well be on the way in just over a week. Juergen Stark, European Central Bank Executive Board Member “For reasons of credibility I think the ECB needs to look seriously at the current rate level given the high inflation expectations… We will not let ourselves be locked in over a long period of time, rather we will decide on a case-by-case basis what is necessary to guarantee price stability over the medium-term.” – June 21, 2008 “We have to l
