By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras said Friday that this week’s rate hike had been unavoidable given the ECB’s new inflation forecasts, but that the Governing Council had made no commitment to act again in July or September.

Stournaras, who heads the Bank of Greece, told journalists at the 7th OT Forum in Athens that Thursday’s 25bp rate increase had been unanimous.

The ECB’s new inflation forecasts showed inflation “quite elevated,” he said.

“In December, we forecast inflation for the Eurozone in 2026 at 1.6%-1.7%,” he said. “Now we forecast 3%.”

The ECB now expected inflation in 2027 at 2.3% and in 2028 at 2%, he noted.

“Conditions have therefore tightened quite a lot for inflation, and there was no other possibility than to raise interest rates,” Stournaras said.

The shock had come from the energy side because of the closure of the Strait of Hormuz, he said.

If there were indeed an agreement, as had been discussed Friday morning, and this led to a sharp fall in oil prices, “nothing prevents us from reconsidering our next moves,” he said.

“But we are open,” he said. “There is no commitment either for July or for September, you should know.”

“We will see how conditions evolve, we will assess and we will decide,” he said.

The ECB currently had four scenarios, consisting of a baseline, a milder-than-baseline scenario and two worse scenarios, Stournaras said.

The Bank of Greece would publish corresponding scenarios in the coming days, as would each Eurozone member country, he said.

“Everything is very fluid, there is very great uncertainty,” he said.

Stournaras said he remained hopeful that an agreement would be reached to reduce energy prices, allow reconstruction in the region and benefit all sides.

Asked whether the effects of the Middle East war would be large even if the conflict ended within several weeks, Stournaras said they would be small.

“Let it end and then we will see,” he said.

If there were an agreement respected by all parties and including Lebanon and Iran, “there will be a period of optimism,” he said.

Economics and expectations were to a large extent driven by what John Maynard Keynes called “animal spirits,” Stournaras said.

Since 2020, the global economy had been experiencing a series of supply-side shocks that had made the work of monetary policy much harder, he said.

“Monetary policy is not suitable for dealing with supply-side shocks,” he said.

It was forced to deal with them using the interest rate, “a very powerful tool” that was not good for the rest of the economy, he said.

Interest rates were useful only for stopping second-round effects on inflation, not primary effects, he said.

“The interest rate does not create oil supply,” he said.

Europe was prepared for the uncertainty, Stournaras said.

Greece was also prepared, he said, adding that the scenarios were built around oil because oil remained central to assumptions about inflation and growth.

Later in the interview, Stournaras said Greece had made substantial reform progress and was not far from the Eurozone average, but still had important ground to cover.

The country still needed progress on public-sector bureaucracy, the speed of judicial decisions, education and public infrastructure, he said.

Stournaras said Greece’s political system needed consensus on three issues: continuing responsible fiscal policy, maintaining progress in the banking system and financial stability, and continuing reforms.

The housing problem was also linked to demographics, he said, arguing that the focus should be on increasing housing supply, including by bringing unused apartments back into use.

Stournaras also said fiscal responsibility should be strengthened in Greece’s constitution.

If Greece were to enter a new period of difficulty forming a government, this would damage the economy, he said.

What was needed was political consensus on fiscal responsibility, banking-sector progress and reforms, he said.

If Greece stopped showing fiscal responsibility, halted improvement in the banking system or returned to old payment-culture problems, it would “return to where we started,” he said.