The European Central Bank is open to all scenarios to keep inflation at bay, although its policymakers don’t feel the need to intervene at the moment, despite a surge in oil prices due to the Iran war.
In the last public statement before the routine policy meeting on 19 March, members of the ECB council cool off any immediate call to action, saying they are waiting for more analysis and to see where energy prices end up.
Bundesbank President Joachim Nagel said that the ECB will remain vigilant and that “the ECB will act decisively” if the energy prices risk damaging inflation in the medium term. Also, the head of the French bank, Francois Villeroy de Galhau, spoke in similar terms, telling French radio RTL that “I do not believe, as things stand today, that interest rates need to be raised right now.”
The ECB and its members fear a return to the untenable levels of inflation. The threat of inflation also came from ECB President Christine Lagarde, who told French media, “We will do everything necessary to keep inflation under control and to ensure that the French, the Europeans, do not experience inflationary increases like those we saw in 2022 and 2023.”
So far, the ECB feels confident enough not to raise rates yet, as inflation was already running below the 2% target before the current Iranian crisis, giving some more wiggle room in case the situation keeps deteriorating. Overall, the ECB wants to avoid a repeat of 2021/2022, when the response was slow and led to rapid rate hikes to cope with rising inflation.
Uncertainty over the situation in the Middle East and energy prices means the ECB will continue to monitor the situation, as financial markets are speculating on 30 to 35 basis points of rate hikes this year. Predictions for the year expected no change during 2026.
