In an interview with Cyprus News Agency, ECB Chief Economist Philip Lane stressed the importance of being data-dependent and scientific in deciding on a potential interest rate hike at the May meeting. He explained, “if the baseline we developed before the banking stress holds up, it will be appropriate to have a further increase in May. However, we need to be data-dependent about the assessment of whether that baseline still holds true at the time of our May meeting.”

Lane highlighted three factors that will influence the May decision: the inflation outlook, assessing the underlying dynamic of inflation, and the speed at which interest rate increases are restricting the economy and bringing down inflation. He urged focusing on understanding every data point instead of predicting the decision, stating, “rather than asking me what the next interest rate decision will be, the focus should be on understanding every data point that comes in.”

Responding to a question regarding OPEC’s production, the ECB Chief Economist note that the movement in oil prices should be weighed against the context of a large drop in recent months and a significant ongoing reduction in gas prices. Lane emphasized the importance of monitoring how the rest of the economy responds to the energy dynamic and analyzing the incoming data until the day of the May meeting.

Full interview of ECB Philip Lane here.

ECB Governing Council member Gabriel Makhlouf emphasized the need for vigilance regarding the lagging effects of monetary policy on growth and inflation.

He said today, “We must remain alert to the longer lags in the transmission of monetary policy to growth and inflation.” He highlighted the importance of evaluating the impact of past monetary policy decisions on the economy when determining further action.

Makhlouf also stressed that the ECB “must remain steadfast and ready to act as required” to ensure that inflation returns to its target level over the medium-term.

He added that interest rates must be maintained at a restrictive level to dampen demand, implying a continued cautious approach by the ECB in managing inflation expectations and economic growth.

ECB has released its Consumer Expectations Survey results for February 2023, which demonstrate a continuing moderating inflation expectations and uptick in growth outlook. The results suggest that consumers may be regaining some confidence in the Eurozone’s economic recovery prospects.

Median inflation expectations for the coming year dropped from 4.9% in January to 4.6%, compared to 5.0% in December. In addition, expectations for inflation three years ahead also saw a slight decrease, from 2.5% to 2.4%, in contrast to December’s 3.0%.

On a positive note, mean economic growth expectations for the next 12 months experienced an improvement. The figure rose from January’s 1.2% to -0.9%, a better outcome when compared to December’s -1.5%.

Full ECB Consumer Expectations Survey here.