By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras on Monday said the ECB’s next interest rate decision would depend heavily on whether the war in the Middle East had ended by the April 30 meeting, suggesting that a halt in the fighting would strengthen the case against tightening.

Stournaras, who heads the Bank of Greece, said in an interview with Greek newspaper Kathimerini that the conflict was a supply-side shock that created stagflationary pressure and complicated the ECB’s job by threatening both higher prices and weaker growth.

“Supply-side shocks add to the difficulty of monetary policy because interest rates cannot cure the supply-side problem, they cannot provide more oil,” he said. In theory, such a shock should be ignored if it does not affect expectations or trigger second-round effects. “Things, however, in practice are not so simple,” he said.

He said expectations could still be affected, spillovers could emerge, and government support measures could add demand, making it harder for policymakers to judge the proper response. “If inflationary expectations create permanent inflation, you’ve lost the game,” he said.

Asked whether a rate decision could be expected at the next meeting, Stournaras said much would depend on the state of the conflict by then.

“It’s hard to tell you,” he said. “My personal view is that everything will depend on the development of the peace talks.”

“If indeed by then, on April 30, the war has stopped, this will be a good basis for those of us who would like not to have an increase,” he said. “Otherwise, it will be difficult.”

Stournaras also said fiscal policy mattered in assessing the inflation outlook, warning that support should not take forms that broadly stimulate demand. He said any new Greek government measures should be “specific, temporary and targeted.”

On inflation more broadly, he said Greece’s price growth continued to run above the Eurozone’s because demand was exceeding the economy’s productive capacity. He also pointed to weak competition in some sectors and said the government should address barriers to business entry.