ECB's Wunsch keeps July hike in play despite oil price drop

Wunsch noted that while a U.S.-Iran deal should reduce inflation and potentially lead to an oil glut, the ECB may still need to increase rates if services inflation, which rose to 3.5% in May, continues to climb. He suggested a potential 25 basis point hike, followed by rate cuts if inflation dynamics reverse.

He added that he would support a second hike if incoming data is not moving in the right direction, but would not rush if the data is ambiguous. Wunsch also believes the ECB could offer more conditional guidance beyond its current 'meeting by meeting' approach.

ECB Chief Economist Philip Lane had previously told Reuters that the bank would remain proactive in its fight against inflation, even after the Iran deal. Wunsch acknowledged that an argument could be made for the ECB having skipped its recent rate hike given moderating wage growth and the potential for an oil glut, but stood by the decision due to rising inflation and uncertainty at the time.