The governor of the Bank of Greece said the European Central Bank must remain flexible on interest rate decisions as the unfolding conflict involving Iran risks fueling inflation and weighing on the eurozone economy.
In remarks to Reuters, Bank of Greece Governor Yannis Stournaras warned that it is too early to determine the full economic fallout of the crisis, stressing that much will depend on how long the conflict lasts.
ECB Interest Rates and Inflation Outlook
The U.S.-Israeli war on Iran, which has spread to other countries in the region, is widely seen as a potential driver of higher inflation across Europe. Rising energy prices and disruptions to the supply of chemicals and other goods could further strain an economy already experiencing weak growth.
“If negotiations start tomorrow, there will be de-escalation,” Stournaras said. “If it continues, there will be upward pressure on inflation. I do not exclude either. So, we should show flexibility.”
His comments underscore the uncertainty facing ECB policymakers as they assess whether to adjust interest rates in response to new geopolitical risks.
‘Wait-and-See’ Approach to Monetary Policy
For now, Stournaras signaled a cautious stance, urging the ECB to hold steady and closely monitor developments before making any changes to monetary policy parameters.
“The impact on inflation and output depends on the duration and the depth of the armed conflict,” he said. “As we have no visibility on either of them and taking into account the outlook of inflation, in my view we should not rush to change any of the monetary policy parameters now but be alert and monitor the situation very carefully.”
The governor described the crisis as “another serious supply-side shock” for the eurozone economy.
Source: Reuters
