By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member José Luis Escrivá said on Thursday that policymakers should remain cautious about the implications of the recent US-Iran agreement, noting the need for the ECB to remain "particularly agile" in responding to evolving inflation risks.

In a fireside chat at the Foro La Vanguardia in Barcelona, Escrivá, who heads the Banco de España, said the recent decline in oil prices did not fully capture the effects of an estimated 15% reduction in oil production and historically low inventory levels.

He said it remained unclear whether production capacity in Iran and other Gulf countries had suffered lasting damage, how quickly output could be restored, or whether shipping and insurance conditions would return to pre-war levels once traffic through the Strait of Hormuz normalized.

“What has happened is good news; spot oil prices have fallen and forward prices have declined significantly,” he said about the recent deal. “But we have seen considerable swings in both directions in recent months, so we need to approach the situation with caution.”

Escrivá pointed to the high degree of uncertainty surrounding the inflation outlook, including the extent to which higher energy costs could feed through to other prices and eventually generate second-round effects on wages, which he noted had not yet materialized.

“We need to remain particularly agile from one meeting to the next,” he said.

The ECB was deliberately refraining from signaling its next policy move because "it would not be responsible to do so" in the current environment, he said, adding that policymakers retained full optionality going forward.

 

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