By Marta Vilar – WASHINGTON (Econostream) – European Central Bank Governing Council member Álvaro Santos Pereira said on Wednesday that there was considerable uncertainty surrounding the second-round effects of the energy shock stemming from the Middle East conflict.
In an interview with CNBC, Pereira, who heads the Banco de Portugal, said that which of the ECB’s scenarios materializes will depend on the duration of the conflict and the extent of its second-round effects.
“The most important thing for a central bank is to pay attention very closely to the data, which we always do, keep our cool heads and see what have we learned from the past, in particular comparing 2022 to current situation, and be ready to act,” he said.
There was “still a lot of uncertainty, uncertainty also surrounding the second-round effects, so right now keeping our cool heads is important,” he said, adding that the ECB should be ready to act when necessary. .
He said the ECB should pay close attention to the price of natural gas, fertilizers, sulfur and helium.
The global economy had been facing a series of shocks since 2020 but was now “surprisingly resilient,” he said, adding that this acted as a protection against recent volatility.
Asked whether tighter financial conditions were effectively doing some of the ECB’s work, Pereira said spreads were currently “fairly low.”
“I think what will happen in the next few weeks regarding the conflict will have major repercussions on spreads and bond yields and so on, and after that we will be ready to act if needed,” he said.
Pereira noted that the current situation differed from 2021–22 in that inflation was now close to target and demand pressures were much weaker, meaning the economy was starting from a stronger position.
However, ongoing supply shocks—particularly in energy—still posed risks, especially if they persist or worsen, making the policy trade-off between supporting growth and controlling inflation challenging, he said.
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