Speculation of an imminent interest rate hike in the euro zone drove up the euro exchange rate on Thursday morning. One unit of the common currency cost up to 1.0922 dollars. On the previous evening, it was still around 1.085 dollars. Some high-ranking ECB officials had spoken out in favor of a tightening of interest rate policy, after the European Central Bank (ECB) had recently shown itself to be rather hesitant and had also decided against an increase in its most recent interest rate decision.

Among others, Bundesbank President Joachim Nagel had held out the prospect of a first interest rate hike in the summer due to high inflation in Germany. ECB Council member Pierre Wunsch also said he considered a key interest rate hike in July possible. The monetary policy decisions needed for this would "of course depend on the data," Wunsch said in an interview with the Bloomberg news agency published Thursday.

A first interest rate step since the start of the Corona crisis in July is "certainly a scenario I would consider," the president of the Belgian central bank said. But that would be contingent on "another inflation surprise." Wunsch also considers an increase in key interest rates into positive territory by the end of the year possible. Again, Wunsch made monetary policy decisions dependent on the data situation. Already on Wednesday, Council member Martins Kazaks, who heads Latvia's central bank, had put a July rate hike into play.

ECB Vice President Luis de Guindos also supported a first rate hike in July in a Bloomberg interview. "I see no reason why we should not let our asset purchase program run out in July," de Guindos said. As things stand, he said, a rate hike in July would then also be possible. However, the vice president also considers an interest rate step only possible in September or later and made it clear that the decision would depend on the data situation.

In addition, inflation in the euro area rose to a record high of 7.4 percent on average in March, according to final figures released by Eurostat, the statistics office, on Thursday.Faster ECB action on inflation would require the economic outlook not to deteriorate significantly, Commerzbank analyst Antje Praefcke said. "If Europe is spared an energy crisis, it is likely that the ECB will raise the key interest rate in the fall, as our experts expect."

Central banks face a balancing act: if they raise rates too quickly or sharply, the economy and labor market could be stifled. On the horizon is the scenario of looming stagflation, the combination of rising prices and economic stagnation.Nagel also urged prudence at the IMF's spring meeting in Washington. "An all-out monetary policy brake, on the other hand, would not make sense," he said. One should not turn the interest rate screw too hastily.

Image by Gerd Altmann