By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gediminas Šimkus said on Monday that the ECB was likely to raise interest rates in June, with the direction of the next move “sufficiently obvious” given higher inflation and increased inflation risks.

Šimkus, who heads the Bank of Lithuania, said in Vilnius that the ECB would have more data next month on the economic and inflation impact of the Middle East war, while the decision would depend on how the conflict developed.

“I think the most likely decision, the direction of interest rates, is sufficiently obvious,” he said. “It is obvious that we are talking about a possible increase in interest rates in June.”

The ECB was facing higher inflation and increased inflation risks, Šimkus said.

“In such a situation, from the monetary policy side, the decision is sufficiently obvious,” he said. “The question is how the situation around the war in the Middle East will evolve.”

The ECB left interest rates unchanged last Thursday because much of the available data was broadly in line with the March projections, he said.

The conflict had so far lasted too briefly for its economic impact to be assessed properly, though the ECB believed it had already caused a sharp increase in energy prices, pushing inflation higher and negatively affecting economic sentiment, Šimkus said.

“The situation around the war in the Middle East is very uncertain and changing rapidly,” he said. “In June, we will have both macroeconomic data and updated macroeconomic projections, which will allow us to better assess the situation in the economy.”

An end to the Middle East war would be a factor that could allow the ECB to consider a different decision, he said.

The longer the war continued and the longer energy prices stayed high, the greater the likely impact on overall inflation and the economy, according to Šimkus.

Businesses and consumers in the Eurozone were already becoming more cautious, banks had tightened lending conditions and surveys pointed to slower economic growth, he said.

“Perhaps second-round effects are not yet being observed, but the longer and more intensively the war develops, the more it would have effects, including secondary and indirect effects, on the entire economy and price growth,” Šimkus said.