ECB Governing Council member: The possibility of a rate hike in April cannot be ruled out!

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The ongoing tensions in the Middle East are driving up energy prices, and discussions about interest rate hikes within the European Central Bank are heating up.

Madis Muller, a member of the ECB Governing Council, said on Tuesday that if the Iranian war continues to push up oil and gas prices, the possibility of the central bank raising interest rates at its April policy meeting cannot be ruled out.

This statement has tightened market expectations for the ECB's monetary policy path, with traders now pricing in up to three interest rate hikes by the ECB this year, each by 25 basis points.

The next ECB monetary policy meeting is scheduled for April 30. While most members prefer to wait and assess the size of the inflation shock, Muller's remarks indicate that some officials are inclined to take action more quickly, and policy disagreements are emerging.

The window for rate hikes is open; energy prices are the key variable

In an interview in Tallinn, Estonia's capital, on Tuesday, Muller said, "It's hard to judge how the situation will evolve by the end of April. If energy prices remain high for a long time, we really cannot rule out the possibility of adjusting interest rates in April."

This Estonian official's remarks have brought the discussion of an April rate hike from market expectation into the decision-makers' field of vision. Tightening energy supplies in the Gulf region due to the Middle East situation is the main external variable prompting the ECB to reassess the pace of rate hikes.

Wages and labor market: the observation window for inflation spreading

Muller stated he will closely monitor wage trends and labor market conditions, considering them key indicators in determining whether inflationary pressures are spreading across the board.

He also pointed out that rising energy prices have different transmission paths across industries; sectors like aviation, which use energy as an important input, are especially directly affected.

"To maintain purchasing power, people will have to push for larger wage increases," he said. He also stressed that policymakers must take long-term inflation expectations from markets and consumers into account to prevent inflation expectations from becoming unanchored.

Disagreements within the ECB intensify; the market has already priced in changes

Although most ECB officials currently prefer to wait for more data and assess the actual impact of the Middle East conflict on European inflation, some members have started to lean toward action.

Muller's remarks further confirm internal differences within the committee regarding the pace of policy changes.

Traders have already priced in up to three 25-basis-point interest rate hikes by the ECB this year, reflecting the market's high level of vigilance over the persistence of energy-driven inflationary pressures.

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