ECB governing council member Patsalides cautions against early interest rate hikes

Christodoulos Patsalides, Governor of the Central Bank of Cyprus and member of the European Central Bank (ECB) Governing Council, stated that the ECB should not rush to raise interest rates in response to rising energy costs. He noted that the baseline scenario remains unchanged and there is currently no evidence that inflation is becoming entrenched across the 21 eurozone countries. While markets are pricing in three rate hikes this year, beginning in April or June, expectations remain volatile due to the ongoing conflict between the US and Israel and its impact on the energy crisis. Patsalides emphasized that he would be willing to support a rate increase if evidence confirms that elevated inflation is persistent rather than transitory. Currently, the ECB projects inflation to exceed 3% in the second quarter before returning to the 2% target within a year. However, alternative adverse scenarios suggest the possibility of more prolonged inflationary pressures. Patsalides concluded that the ECB lacks sufficient data to confirm whether the current situation is temporary, justifying his cautious stance.