ECB May Hike Rates If Iran War Conflict Extends Beyond June

(MENAFN) A senior European Central Bank policymaker cautioned Friday that borrowing costs may need to rise if the Middle East conflict extends beyond the summer, while urging patience as the full economic consequences of the war remain difficult to gauge.

Pierre Wunsch, a member of the ECB's Governing Council, told Bloomberg Television that the bank would almost certainly be forced to act should the Iran conflict remain unresolved by June — a prolonged scenario that he warned would drive inflation significantly beyond the bank's baseline forecasts.

"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 did not rule out an even earlier move, suggesting that an April rate decision remains firmly on the table if incoming economic data confirm that the energy price shock will prove lasting rather than temporary.

"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."

The remarks reflect growing unease among ECB officials over whether the spike in energy prices fueled by the conflict could ripple more broadly through consumer prices across the eurozone.

ECB President Christine Lagarde struck a similar tone earlier this week, signaling the bank is prepared to act "decisively and swiftly" if circumstances demand it. Bundesbank chief Joachim Nagel has also flagged the possibility of a rate increase as early as next month should the inflation outlook continue to deteriorate.

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