At the ECB Forum on Central Banking in Sintra, Portugal, Slovenian central bank governor Primoz Dolenc said that recent developments in energy markets may permit the European Central Bank to delay its next interest rate decision until September.
Dolenc cited a faster-than-expected decline in energy prices as the key reason the bank might be able to wait. The ECB raised rates in June with the specific aim of preventing inflationary pressure stemming from higher energy costs from spreading more broadly through the economy.
"The latest developments in the energy market are more benign than it was expected just a few weeks ago," Dolenc said. He added that if the current energy-price environment persists and levels remain around where they are now, "then the pressure on us to act will ease and we could afford to wait until fresh projections in September to decide on the appropriate policy calibration."
Policymakers remain divided over whether to press ahead with another rate increase at the July meeting or to postpone further tightening until the ECB's September projections, Dolenc said. The bank's own June 11 forecasts had been constructed on the assumption that oil prices would stay elevated for years, a backdrop that supported the decision to raise rates in June.
Market pricing has already moved below the bank's milder scenario for the remainder of the year, according to Dolenc's remarks. He also noted that, to date, inflation readings have not shown clear evidence that higher energy costs are creating second-round effects across the broader economy.
Dolenc cautioned that the bank will base future decisions on incoming data and that the outlook could still change before the July meeting, particularly given the elevated volatility in markets. That caveat leaves room for either path - an additional July increase or a pause until September - depending on how conditions evolve.
Context and implications
Dolenc's comments underline the ECB's data-dependent approach: a sustained, lower energy-price profile could reduce near-term pressure on policy, while an uptick in volatility or signs of second-round inflation effects would prompt reconsideration before any decision.