ECB Likely to Raise Rates in June Amid Iran Conflict

The war between the United States and Iran, with the Strait of Hormuz blocked, has kept oil prices high. European finance chiefs in Nicosia warned that without a peace settlement the euro-area’s inflation outlook will worsen, pressuring the ECB to act.

Bloomberg

Yannis Stournaras, governor of the Bank of Greece, and Martin Kocher, governor of the Austrian National Bank, sit on the ECB Governing Council. Their recent remarks have shaped expectations for a policy move at the June 10-11 meeting.

Bloomberg

The ECB’s March forecast of 2.6 % average consumer-price growth for the year is likely to be revised upward. Output rose 0.1 % in Q1, while the PMI signaled contraction. Officials called inflation “sticky” and warned expectations could become unhinged.

Bloomberg

Policymakers argue that maintaining the ECB’s credibility requires a demonstrable reaction function. Failure to raise rates amid rising prices could erode confidence in the bank’s commitment to price stability and embed higher inflation expectations.

Bloomberg

Stournaras said a June rate hike is needed to preserve ECB credibility, acknowledging the social cost of tighter financing. He added that a peace agreement could quickly lower energy prices and keep rates unchanged. Kocher noted that data point to a choice between holding or raising rates, stressing that worsening conditions would force action, while describing the euro-area economy as “relatively resilient” despite uncertainty.

Bloomberg

Some dovish members have signaled reluctance to pre-commit to a hike, echoing Kocher’s view that it would be premature to lock in a decision. This caution reflects a split between protecting credibility and concerns about growth and employment.

Bloomberg

The magnitude of inflation’s upward revision and the timeline for a US-Iran peace deal remain unclear. Analysts lack consensus on how quickly oil prices might fall if the Strait of Hormuz reopens.

Bloomberg

• “An interest-rate hike comes at a cost — for people, for employment — and that’s why I wish we didn’t have to do it. But if the situation continues and we don’t, it’s going to be problematic,” — Yannis Stournaras, Governor of the Bank of Greece

Bloomberg

• “I have the feeling inflation is sticky,” — Yannis Stournaras, Governor of the Bank of Greece

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• “There are always scenarios with very low probabilities that lead to a different assessment of the situation, but at the moment, everything points to us deciding between holding and raising rates,” — Martin Kocher, Governor of the Austrian National Bank

Bloomberg

• “Everything points to prices rising somewhat more sharply than was expected back in March,” — Martin Kocher, Governor of the Austrian National Bank

Bloomberg

The ECB’s Governing Council will review fresh growth and inflation forecasts at its June 10-11 meeting, where a decision on a rate increase is expected.

Bloomberg