By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Martin Kocher on Thursday said the ECB was not pre-committed to raising interest rates in June, but would have to consider rate hikes in the coming months if the Middle East situation failed to improve and energy prices remained elevated.

Kocher, who heads the Oesterreichische Nationalbank, said in an interview with Austrian newspaper Kronen Zeitung that the ECB remained committed to deciding “only at the meeting” and not locking itself in beforehand.

“I think that [approach] is good, and we will stick to it,” he said.

Still, if the situation in the Middle East did not improve, and if prices stayed high or rose further, monetary policy would need to respond, he said.

“It is clear that we now need heightened attention here, and it is also important to signal that the ECB is completely determined to fight the inflation that has now emerged and not to wait too long,” he said.

If the situation around the Strait of Hormuz improved in coming weeks, the ECB would reassess matters differently, Kocher said.

“One should be cautious with these forecasts,” he said. “But if nothing improves, then we must indeed also think concretely about how things can continue, and that would mean interest rate hikes at some point over the next few months.”

Asked whether language in the ECB’s April 30 monetary policy statement amounted to a signal that a rate increase should be expected in June, Kocher rejected such an interpretation.

“That does not mean that,” he said, pointing instead to the ECB’s data-dependent, meeting-by-meeting approach.

The statement nevertheless showed that the ECB’s level of attention remained elevated, he said.

Kocher said the Middle East war had worsened the economic situation and increased inflation risks.

“We have a war in the Near and Middle East, we have an increased danger of inflation, and we are already seeing that, not only the danger; we have higher inflation rates,” he said.

The longer the situation lasted, the more inflation risk would rise and the greater the danger that inflation would spread beyond energy into other parts of the economy, he said.

In that case, “there is of course a need to act in monetary policy,” he said. “That would mean raising interest rates.”

The next Governing Council meeting was in June, Kocher observed, meaning there was still time to monitor developments and assess the optimal reaction.

“How much and when is always another question,” he said.

Kocher also cautioned against treating ECB language as a rigid system of code words, even though market participants closely scrutinized each change in the central bank’s statements.

“It is not the case that one sticks slavishly to some codes,” he said. “But it is clear that if you change a formulation, then that usually means that there have been different assumptions or that there are different instructions for action that can be derived from it.”

Markets tended to compare the present with the past and to focus on changes rather than only on individual words, he said.

“There are a few words that are of course, exactly as you say, codes that are meant to signal something,” he said. “But mostly it is more about what changes in such a statement.”

Every word of the ECB’s monetary policy statement was discussed by the Governing Council, Kocher said.

“Every word is put on the scales,” he said.

The statement was not the only source of information, he said, adding that the ECB president and vice president subsequently answered questions openly at the press conference.

“One usually learns more from that than from the statement,” he said.

Kocher said the ECB’s primary mandate was price stability, defined as inflation of 2%.

“For the central bank, yes,” he said when asked whether this objective was more important than growth.

The ECB could support growth as a secondary objective only if price stability was assured, he said.

“Our only supreme objective is price stability, to achieve 2% inflation as far as possible,” he said.

The current environment of high inflation and weak growth complicated policy, Kocher said, but the ECB’s mandate still made the decision easier than might appear at first glance.

On US tariffs, Kocher said these were “nothing other than taxes on imports,” with the direct price effect falling mainly on the United States.

However, protectionist tendencies were also harmful to Europe, he said.

“Europe is an export-oriented continent,” he said. “It leads to less demand, to us exporting less.”

Kocher said such developments were damaging the world economy at a time when growth was already weak.

Asked what a prolonged blockage of the Strait of Hormuz would mean for Austria, Kocher said the OeNB’s baseline expectation was still that the situation would ease in the coming weeks.

In that case, Austria would suffer a hit, with inflation averaging around 2.6% to 2.7% this year and growth of around 0.5%, somewhat less than previously expected, he said.

If the closure lasted longer, inflation and growth would worsen materially, Kocher said.

“If the strait is blocked for longer, then we are talking about 3%, 3.5%, 4%, 4.5% inflation,” he said.

Growth could then fall toward 0.2% or 0.1%, he said.

Austria and other economies were dependent on the route not only for oil but also for fertilizer and other goods, Kocher said.

“If that is not the case for longer, then part of global supply falls away and we simply get into difficulties; prices rise further,” he said.