The European Central Bank (ECB) has managed to achieve its goal of keeping inflation in check, but the outlook for prices remains uncertain amid volatility in currency exchange rates and commodity markets, Gediminas Simkus, a member of the ECB’s Governing Council and a head of the Lithuanian central bank, said on Tuesday.
Speaking to Bloomberg on the sidelines of the ECB’s annual symposium in Sintra, Portugal, Simkus noted that the sharp appreciation of the euro against the US dollar and energy price fluctuations caused by tensions in the Middle East could push inflation further away from the 2% target.
According to him, geopolitical instability, changes in global trade policy and exchange rate dynamics are creating significant uncertainty in inflation expectations, and therefore the most likely decision at the ECB’s upcoming July meeting will be to pause the cycle of interest rate cuts.
Simkus stressed that the inflation trajectory remains vulnerable and that the assumptions underlying the regulator’s forecast do not yet inspire complete confidence. He pointed out that the Central Bank should closely monitor the pace of the euro’s appreciation, as such a rapid change in the exchange rate, although not unprecedented, requires serious attention from a monetary policy perspective.
He also confirmed that, given the approach of rates to a neutral level at which monetary policy has neither a stimulating nor a restraining effect on the economy, maintaining the current parameters at the July meeting appears to be a logical scenario.
This approach is in line with the expectations of most analysts, who believe that the next possible rate cut will take place no earlier than September, after eight stages of policy easing that began in June 2024.
