By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Primož Dolenc on Friday said that last week’s decision by the ECB to leave interest rates unchanged reflected excessive uncertainty, but that by the next policy meeting at the end of April there should be more clarity, allowing a better-informed discussion of any possible move.

Dolenc, who heads Banka Slovenije, told Slovenian weekly magazine Mladina that policymakers had not changed rates because uncertainty was “too great” and because it was assumed that “by the next meeting at the end of April there will be more clarity.”

“Then a more informed reflection on a possible intervention will be possible,” he said.

The main question surrounding the Iran conflict was how long it would last and what its consequences would be, he said, adding that the baseline scenario discussed last week at the ECB had been that the conflict would be resolved relatively quickly, with energy prices rising only temporarily before falling back.

That scenario now looked less realistic, he said, warning that tensions between the U.S. president and Iran were not easing and could instead point to a longer conflict with more lasting consequences. Dolenc said one risk was that energy prices would begin feeding into the prices of other goods, starting with food through fertilizer and transport costs. A worse scenario, he said, would involve quantitative energy shortages.

On the policy backdrop, Dolenc said the “optimistic aspect of the current situation” was that, compared with 2022, the euro area was now in “a significantly better position” in terms of both inflation and growth. He noted that inflation was now at 2% and that the deposit rate, which he described as best reflecting the stance of European monetary policy, was also at 2%, or at a neutral level.

At the same time, he said the negative aspect of the current situation was similar to that of 2022 in that the euro area was again facing a supply-side shock, which monetary policy is less well suited to address. “Very careful measures will be needed,” he said, adding that some projections showed that lowering inflation could negatively affect growth.

Asked about Slovenia’s outlook, Dolenc said December projections showing 2.3% inflation and 2.2% growth this year did not yet reflect the latest escalation. New forecasts would be published in June, he said, but “we can conclude that they will be somewhat worse,” depending above all on developments around Iran.