By Marta Vilar – BRUSSELS (Econostream) – Following is the full transcript of the interview conducted by Econostream on 5 March 2026 with Olli Rehn, Governor of the Bank of Finland and member of the Governing Council of the European Central Bank:

Q: Governor, markets seem a bit more relieved about the Iran conflict, but you don’t appear as optimistic. What is your baseline view?

A: We need to keep a cool head when analyzing the economic and financial consequences of the Middle East conflict. Two factors are decisive for the economic impact: the duration and the degree of escalation, which we have already seen to some extent. We must be prepared for both scenarios, in the short term and the longer term. From the perspective of monetary policy, it is important not to rush to conclusions. Historically, conflicts like this have both supply-side and demand-side effects, and these affect growth and inflation in different ways.

Q: You sounded pessimistic about the duration. Could it last longer than markets expect?

A: I don’t know what markets are pricing in, but historically conflicts like this often last longer than expected. It is easier to start a war than to end one.

Q: What is your view on the recent surge in oil prices?

A: A prolonged blockage of the Strait of Hormuz would create strong pressure on crude oil markets. We have already seen this reflected in Brent prices. If the Strait were effectively blocked for weeks or months, the impact on oil prices—and therefore inflation and growth—would probably be significant.

Q: Could weaker growth driven by the conflict eventually offset the inflationary impact of higher energy prices?

A: That is a central question for monetary policy, and ultimately an empirical one. We do not know in advance which channel will be stronger or what the net effect will be. The European economy has shown resilience, but growth remains subdued. Supply disruptions would create upside risks to inflation, especially in the short term, while weaker demand would weigh on growth. We must monitor how these forces evolve. That is why it is important not to rush to conclusions about the inflationary or growth effects of the conflict.

Q: Do you see any reason to discuss rate hikes now?

A: As I said, we should not rush to conclusions. I would not speculate about interest rate decisions at this stage. We need a cool head and a steady hand, and we will decide meeting by meeting, based on incoming data and a comprehensive assessment. In times like these, monetary policy is as much art as science.

Q: The ECB may present scenario analysis on the Iran conflict in two weeks. What might those look like?

A: The Governing Council’s internal discussions are still ahead of us. At the Bank of Finland we are preparing two scenarios: one assuming a shorter conflict, and another assuming a longer, more escalated conflict. These would have very different implications.

Q: Can you give us an indication of what those scenarios suggest for the Bank of Finland?

A: I would prefer to give our economists the space to complete their work.

Q: What indicators will you watch most closely when deciding on monetary policy?

A: Monetary policymaking requires a comprehensive assessment, combining developments in the real economy, financial markets and other factors. Of course, we will monitor the conflict and energy markets closely. But we must also consider other forces. On the upside for inflation, the energy market is the obvious driver. On the downside, services inflation is easing alongside moderate wage growth, and cheaper imports from China are also exerting downward pressure. We will ensure price stability with a steady hand and thus keep inflation stabilized at our symmetric 2% target over the medium term.

Q: In terms of growth, is it fair to say that recent developments tilt the risks to the more to the downside?

A: Yes. It is fairly clear that the Iran conflict and its economic consequences are damaging global growth. There is also a difference between the US and Europe. The US is now a net exporter of fossil fuels, while Europe remains a net importer despite progress in the green transition. Markets seem to reflect this difference, which may partly explain the euro’s recent weakening against the dollar.

Q: You mentioned Chinese imports. Do you think they are already affecting inflation?

A: We have reason to believe that Chinese imports are already having some impact on inflation, though we are studying it further. The main effects may still lie ahead. China continues to rely heavily on investment-led growth rather than domestic demand, which contributes to global imbalances. Europe should not remain the only large market absorbing these flows. The EU has trade instruments, and the European Commission has already proposed measures to strengthen industrial resilience.

Q: A few weeks ago, you warned about the “real risk” of “lower-than-projected inflation”. Do you still see that risk?

A: Inflation risks are two-sided. In the short term, higher oil and gas prices create upside risks. But there are also downside risks from weaker services inflation, moderate wage growth and cheaper imports from China.

Q: CPI was 1.7% in January and 1.9% in February’s flash estimate. Do you still think inflation could undershoot more than expected?

A: I do not want to jump to conclusions. I follow the data with great interest, but our decisions must always be based on comprehensive careful analysis.