By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Martin Kocher on Thursday said that if the situation in the Middle East continued for a while, it was clear that the ECB’s monetary policy stance would be affected.

Kocher, who heads the Oesterreichische Nationalbank, told Politico that “[n]obody wants to raise rates. It would hit an economy that is not growing strongly anyway.”

“Price increases that we have seen at times over the last two weeks are above the baseline scenario, and we haven’t seen any improvements,” he warned.

The ECB had kept its credibility by mastering the last inflation shock and would only need to respond if medium-term inflation expectations showed signs of shifting higher, he said. At the same time, he said it was too early to know whether enough evidence would be available by the ECB’s next monetary policy meeting on April 30.

Kocher said the current situation differed from 2022, when inflation was already above target and rising, the economy was overheating, and the ECB’s key interest rate was still negative.

“Now,” he said, “we have full optionality, and we can react quickly or give ourselves some time, depending on what kind of signals we get.”

For that reason, it “makes sense to have a steady hand,” he said, while stressing that the risk of second-round effects needed close monitoring.

Kocher also said governments should avoid repeating broad subsidy programs to cap energy costs. Any such measures should instead be “targeted, temporary and tailored,” he said.

On eurobonds, Kocher said a common safe asset was “clearly advantageous” from a monetary policy viewpoint, but argued that the political bar remained high.

“Rules, responsibilities and matters of liability have to be clearly and unequivocally defined,” he said, adding that anything beyond that would require a more fundamental discussion about fiscal policy coordination.