ISTANBUL
A member of the European Central Bank’s (ECB) Governing Council Friday said the bank may need to raise interest rates if the war with Iran continues beyond June, while stressing that policymakers are not rushing to respond before the scale of the economic fallout becomes clearer.
Speaking to Bloomberg Television, Pierre Wunsch said the ECB would likely have to react if the conflict remains unresolved by June, as such a scenario would push inflation well above the bank’s baseline projections.
“If the conflict is not over by June, then we are most probably way above our baseline, and that would warrant some kind of reaction,” Wunsch said, adding that he is “comfortable” with market pricing for at least two rate hikes this year.
Wunsch said an April move cannot be ruled out if incoming data show that the shock from rising energy prices will be prolonged and feed into more persistent inflation.
“April is not out of the question,” he said. “If by April we have solid evidence the shock will be lasting and will lead to a big high and inflation that is likely to have some degree of persistence, we might have to do something.”
His remarks came as ECB policymakers assess whether surging energy prices linked to the conflict could spill over more broadly into consumer prices across the euro area.
ECB President Christine Lagarde said earlier this week that the bank stands ready to act “decisively and swiftly” if needed, while Bundesbank chief Joachim Nagel has also signaled that rates may have to be raised as soon as next month if the inflation outlook worsens further.