European Central Bank Governing Council member Yannis Stournaras says an October rate hike remains possible if energy costs or September inflation data surge, even as he urges the ECB to avoid acting hastily. Markets already price a quarter-point increase in the deposit rate to 2.75% next month, with euro traders watching oil prices and next month's inflation print for direction.
Yannis Stournaras, the Bank of Greece Governor and a Governing Council member, told Bloomberg the ECB must stay vigilant on upside inflation risks but should avoid acting hastily. He spoke on the sidelines of a meeting of European finance ministers and central bankers in Dublin.
Inflation pressure keeps October hike alive
Inflation sits above 3%, against the ECB's 2% target, after two rate increases since the war in Iran began. Some policymakers argue the resilience of the euro area leaves room for more tightening, while others worry further hikes could hurt growth.
Stournaras said an October increase cannot be ruled out if energy costs surge or if September inflation data accelerates into an adverse scenario. However, he added that policymakers can pause and wait for the next forecast round if uncertainty persists, rather than rush into a decision. With more than a month to go before the next meeting, he said the ECB staff's upcoming economic projections will guide the decision.
Oil and the Middle East as the swing factor
Signs of slowing activity, or a diplomatic resolution in the Middle East that could quickly lower energy prices, would weigh against additional hikes, Stournaras said. Energy costs have become a direct input into the ECB's rate path because oil and gas prices tied to the Iran war function as an inflation risk for the euro area.
He also called the absence of second-round wage effects encouraging, but said the current stability cannot be taken for granted. Stournaras pointed to a continuous run of supply-side shocks, together with demand pressure from fiscal expansion and the booming artificial intelligence investment sector, as reasons for ongoing caution.
Markets price a hike, Fed move seen as supportive
Financial markets are pricing a high probability of a quarter-point increase in the deposit rate to 2.75% next month, with further tightening expected to follow, although economists have voiced reservations. Stournaras described the Federal Reserve's recent rate decision as a positive development for global monetary policy credibility, given the central role of the US dollar.
The next European Central Bank meeting is at the end of October.
Source: Investinglive.com
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