Speaking to Bloomberg Television on Thursday after the U.S. Federal Reserve raised rates on Wednesday, the Irish central-bank chief said officials will judge borrowing costs one meeting at a time. "At a time of uncertainty, every meeting is a live meeting for the European Central Bank," he said when asked about the Oct. 29 gathering. "You can't rule out anything that might happen in future meetings, nor can you rule them in." He wouldn't dismiss an October move if circumstances call for it.
Makhlouf declined to weigh in on market wagers that imply at least three further 25 basis point hikes over the next 12 months. "Markets understand that we're committed to delivering on our 2% inflation target, and at the moment the numbers aren't as strong as we want them to be," he said. "I'm not in the business of saying whether markets are right or wrong."
Addressing an audience of European finance ministers and central-bank officials in Dublin, Makhlouf adopted a cautious stance in light of worldwide developments. With oil and natural gas costs still climbing, he said euro-area inflation is poised to accelerate beyond 3.2%, pushing it further from the ECB's 2% goal. He also noted that, for now, he sees no troubling evidence of price pressures spilling over into pay. "At the moment, we're certainly not seeing signs of concerning second-round effects but it's pretty clear that the shock, the energy shock that started with the war in Iran isn't going away," he said. "The risks to inflation remain on the upside."
The ECB's latest increase lifted the deposit rate to 2.5%. Makhlouf said "Where we are now remains within the neutral band," and he wouldn't speculate on whether another move would push policy into restrictive territory. After this month's decision, people familiar with the discussion said policymakers viewed another step as possible as soon as October. Because the next quarterly forecasts arrive in December, many economists judge the December gathering to be the likelier point for action.
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Markets haven't made up their minds about whether the ECB will follow last week's increase with a quick back to back move, and derivatives pricing points to no fewer than three additional quarter-point increases in the coming 12 months. Pair that with rising energy costs and persistent inflation risks, and you get a backdrop where borrowing costs in Europe could keep nudging higher - something to keep in mind if you're sensitive to rates on mortgages, car loans, or savings yields.
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