ECB's Kazimir: Rate hike on Iran may be closer than thought

[Forex News]

• The ECB is still in good place
• We will be ready to act if needed
• There's no reason to act at the next meeting
• I have no reservations to hike without new forecasts
• Upside inflation risks clearly dominate
• A rate hike on Iran may be closer than thought

The euro caught a bid on that last comment as rate hike bets increased. He's usually erring on the hawkish side, so this is not really a surprise.

None of his colleagues brought up the idea of raising rates earlier than expected; in fact, the majority has been stressing patience, as a premature rate adjustment could be a mistake.

The problem here is that central banks cannot fix the root problem (shortage of oil). If this negative supply shock persists, it could slow growth while pushing inflation higher.

But if the central bank responds by raising interest rates, it would almost certainly trigger a recession as the stock market would fall exacerbating the negative impact on economic activity.

Right now, the market is pricing in 33 bps of tightening by year-end with a 60% chance of a rate hike in June.

This article was written by Giuseppe Dellamotta at investinglive.com.

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