ECB member Madis Müller stated that an April rate move cannot be ruled out, a stance reflecting persistent inflation risks. This caution comes despite market pricing indicating near-zero probability for a significant rate cut at the upcoming meeting.
Müller's comments align with the market's skepticism regarding a dovish shift, particularly given ongoing energy price shocks. His warning against assuming these shocks are temporary suggests a potential inclination toward tightening policy if inflation pressures continue.
Euro area headline inflation reached 2.6% in March, reinforcing the European Central Bank's (ECB) cautious approach and the low market probability assigned to a substantial rate cut. The current market environment is characterized by extremely thin liquidity, making it vulnerable to abrupt price swings with new economic data.
Müller's remarks underscore the ECB's data-dependent strategy, keeping all policy options open. While a rate hike is not strongly signaled, the possibility remains a consideration amid persistent inflation concerns. Market participants awaiting a major dovish pivot would need to see significant policy shifts within weeks.
All eyes are now on ECB President Christine Lagarde's statements and the upcoming April 30 meeting for further guidance. Any change in rhetoric or unexpected economic data could rapidly influence market expectations given the current low liquidity.