The European Commission is increasingly leaning towards raising interest rates next month, amid rising inflationary pressures linked to the conflict with Iran, Bloomberg reported on Sunday, citing European Central Bank Governing Council member Martin Kucher.
Kusher noted that inflation will likely be higher this year than previously expected, as conflict-related high energy costs add further price pressures on households and businesses in the region.
In remarks made on the sidelines of a meeting of European finance ministers in Cyprus, Kocher said policymakers were effectively considering two options: keeping interest rates unchanged, or raising them during the European Central Bank’s upcoming meeting in June.
Kucher said: There are always scenarios with very low probabilities that could lead to a different assessment of the situation, but at the moment, everything indicates that we will choose between holding interest rates steady or raising them.
The European Central Bank's next policy meeting is scheduled for June 10-11, when officials will also be briefed on updated economic forecasts including growth and inflation.
These remarks come at a time when financial markets are reassessing their expectations for European monetary policy, following the sharp rise in oil prices that followed the outbreak of hostilities between Iran and the United States earlier this year.
The conflict has disrupted shipping through the Strait of Hormuz, a vital waterway for global energy exports, raising concerns that higher fuel and transportation costs could have wider inflationary implications.
Although US President Donald Trump announced on Saturday that a peace agreement with Iran was in its final stages, details of any agreement have not yet been released.
Kucher stressed that the level of uncertainty remains high, and declined to provide guidance on the European Central Bank's monetary policy path beyond the next meeting.
He added that recent economic data indicates that the Eurozone economy has shown relative resilience despite geopolitical tensions and weaker-than-expected growth in the first quarter.
Inflation had recently returned to the European Central Bank's 2% target before the trade war began pushing energy prices higher. Policymakers are now assessing whether the recent price shock could lead to more persistent inflationary pressures and affect long-term inflation expectations.
The European Central Bank's new forecasts, due to be released next month, are expected to play a pivotal role in shaping the bank's monetary policy decision.
