By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Yannis Stournaras said Wednesday that the ECB should hold off on raising interest rates for now, adding that he believes the Middle East conflict could end soon.
In a fireside chat at the Delphi Economic Forum XI, Stournaras, who heads the Bank of Greece, said that global uncertainty remained very high.
Markets appeared more hopeful about a near-term end to the war than political analysts, who are “not so optimistic as markets are,” he said.
“But for the moment we are very close to our baseline scenario ... let's say between the baseline and the adverse scenario,” he said.
Given the uncertainty and hopes for a near-term resolution, “we should wait,” he said, adding that “if needed we will act immediately, but for the moment all the estimates we have is that inflation … could be less than in our baseline scenario this year, given the current circumstances and if the war ends soon.”
Negotiators should be given the opportunity to end the conflict and normalize the situation, he said.
“But if this is not the case and it continues, then you should have no doubt that we'll do what is necessary, as we did it before,” he added.
Asked about the ECB’s delayed response to the 2022 inflation shock, Stournaras said policymakers had considered that monetary policy should generally look through energy shocks and respond mainly to second-round effects.
Dovish policymakers at the time were “doing the right thing,” he said, adding that acting earlier might have reduced inflation but risked financial stability.
The ECB was now “wiser” and better equipped with scenarios and experience than in 2022, he said. “But I do not regret that we did not increase interest rates earlier.”
He said there were good reasons to remain calm and allow time to assess incoming data.
“If there is an agreement, then the situation will improve quickly, I think,” he said. “Already markets are even more optimistic than we are in our baseline scenario.”
Stournaras said he believed neither the US nor Iran would wish to continue this war, given the proximity of the mid-term elections in the US and the destruction of the country in Iran.
“So, it doesn’t make any sense to continue the war,” he said. “That's why I belong I belong to the optimists [who believe] that this war will end sooner rather than later.”
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