ECB’s Wunsch signals July rate hike remains on the table

Wunsch, who leads Belgium’s central bank, remains concerned by the recent rise in euro zone services inflation, which climbed to 3.5% in May from 3.0%. While an interim peace deal between Washington and Tehran has softened the outlook for energy-driven price spikes, Wunsch insists that the ECB should prioritize caution. He suggested that raising borrowing costs by another 25 basis points could serve as a safeguard, leaving the door open for future rate cuts if economic conditions shift.

Market expectations currently lean toward a rate increase in September or October, with the deposit rate sitting at 2.25%. However, Wunsch emphasized that if incoming data on wages and non-energy inflation sectors continue to trend negatively, he would advocate for an earlier move. He remains critical of the bank's current "meeting-by-meeting" communication strategy, suggesting that the Governing Council should offer more explicit conditional guidance to markets. Despite acknowledging the potential for an oil surplus next year, he defended the ECB's recent unanimous decision to raise rates, maintaining that the move was necessary given the prevailing uncertainty.