ZURICH, May 11 (Reuters) – The European Central Bank will need to adjust interest rates soon if the inflationary outlook does not significantly improve, ECB Governing Council Member Martin Kocher was quoted as saying on Monday.
Speaking to Switzerland’s Neue Zuercher Zeitung newspaper, Kocher said that even with energy prices being pushed up by the Iran conflict, it made little sense to anticipate the ECB’s next move weeks ahead of its June 11 policy meeting.
“However, if the situation does not improve significantly, there will be no avoiding an interest rate move in the near future,” he said when asked if he agreed with market expectations that the ECB would raise rates in June.
While noting it had been justifiable for the ECB to hold off an interest rate hike in April, Kocher said it should not wait too long to tighten monetary policy if energy prices fail to improve rapidly and significantly.
Asked about potential second-round effects from the U.S.-led conflict with Iran, he said there had not yet been many wage negotiations in Europe since the war began.
“What’s clear is that if the war drags on and energy prices remain high, the risk of second-round effects will increase,” the Austrian central bank governor said.
Still, that impact may differ from the inflation surge of 2021–22 as demand is now weaker, Kocher said.
Asked whether Europe risked slipping into stagflation, Kocher said the recovery in Germany and Austria had been jeopardised by the Middle East conflict, while inflation risks had increased.
“So the risk of a stagflationary development can’t be ruled out, even though the economy and the labour market remain resilient,” he said. “How long the conflict lasts will be decisive.”
(Reporting by Dave GrahamEditing by Ludwig Burger and Shri Navaratnam)
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