ECB Governing Council Member: A second rate hike may be needed after June

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A member of the European Central Bank Governing Council has released one of the most hawkish policy signals of the year, suggesting that the interest rate hike in June may only be the beginning of this round of tightening, rather than the end.

According to Bloomberg, Gediminas Simkus, a member of the ECB Governing Council, said, "An ECB rate hike in June is almost certain, and further increases in borrowing costs will 'very likely' be necessary thereafter." This stance is clearly stronger than most members of the Governing Council — while most support a rate hike in June, they generally remain vague and cautious about the subsequent path.

Simkus bluntly stated, "The probability of a second rate hike is higher than not raising rates," but acknowledged that the specific timing (July, September, or October) is still undetermined. This statement essentially turns market expectations for "at least one more hike this year" into an explicit policy inclination.

His position also aligns closely with current market pricing. At present, traders have fully priced in the expectation of two ECB rate hikes this year. Against this backdrop, Simkus's comments further reinforce the market's assessment that the ECB will maintain its tightening stance.

Act Early to Curb Inflation, No Need to Overworry About Tightening Impact

Simkus stated that although there is currently a lack of comprehensive hard inflation data, market indicators and survey data unanimously point to a "more inflationary environment." In his view, the recent inflation data is not sufficient for a clear improvement, nor is it enough to undermine the necessity of a rate hike in June.

In explaining the logic for raising rates, Simkus defined "prudence" as taking early action — that is, by raising rates at this stage, inflationary pressure can be curbed sooner, preventing the spread of second-round effects, and breaking the potential spiral between wages and prices.

Regarding external concerns that monetary tightening may drag the economy down, Simkus remains relatively calm. He stated that there is no need to overemphasize the direct impact of a single 25 basis-point hike, or even a cumulative 50 basis-point tightening over the year, implying that the current degree of tightening is still within the economy's capacity to bear.

When discussing the new round of quarterly economic forecasts soon to be released by the ECB, Simkus pointed out that recent economic data and survey results overall show "slightly higher inflation and slightly weaker growth." This means the ECB may raise its forecast for future inflation, while slightly lowering its growth expectations.

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