Key facts
- Maltese central bank chief Alexander Demarco urged the ECB not to rush further rate hikes.
- He cited falling oil prices and moderating price pressures as reasons for caution.
- Demarco believes waiting is prudent to avoid harming economic growth.
- He noted that current conditions do not show signs of de-anchored inflation expectations or excessive wage demands.
- Demarco acknowledged that future rate hikes may still be necessary depending on updated projections.
Maltese central bank chief Alexander Demarco has joined a growing number of policymakers urging caution on further interest rate hikes by the European Central Bank (ECB). Speaking at the ECB Forum on Central Banking in Sintra, Portugal, Demarco stated that given the rapid decline in oil prices and moderating inflation pressures, the ECB should not rush into another rate increase.
Demarco explained that lower energy costs are expected to quickly ease inflation expectations and keep wage demands in check. He noted that real wage growth remains positive even with inflation above the ECB's 2% target. He added that the only justifications for immediate rate hikes would be significant indirect or second-round inflation effects, de-anchored inflation expectations, or rising wage demands, none of which he currently sees.
"We’re seeing none of these, so given current conditions with oil prices returning to around pre-conflict levels, we can afford to wait for the next set of projections rather than risk hurting unnecessarily economic growth with another hasty rate hike," Demarco told Reuters. Financial markets are pricing in a one-in-three chance of a July rate hike, with a move by October fully priced in. Demarco also acknowledged that if the ECB's latest projections indicate a need for further tightening, a rate hike may still be required.