By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Yannis Stournaras said Saturday that another interest-rate increase in October could be warranted if inflation or energy prices deteriorated significantly, while arguing that policymakers should otherwise be prepared to wait for further evidence.

The Bank of Greece governor told Bloomberg that the absence to date of significant second-round effects was encouraging but could not be assumed to continue.

“If there’s an inflation surge in September or a rise in energy costs that take [sic] us well into the adverse scenario, a hike in October can’t be excluded,” Stournaras said. “But if there is a bit of doubt, we’ll not do anything and wait until the next round of forecasts. There’s no need to rush action.”

While describing the lack of second-round effects through wages and other channels as “good news,” Stournaras warned that repeated supply shocks were being accompanied by demand pressures.

“We are seeing a continuum of supply-side shocks and we cannot simply look through that, and at the same time, there’s also a strong demand element due to fiscal expansion and the boom in AI investment,” he said. “We must remain vigilant.”

Signs that the economy was losing momentum would instead strengthen the case for keeping rates unchanged, Stournaras said.

“If data on the economy shows that resilience doesn’t continue or activity growth is decelerating, I think that would be a reason not to hike, and a reason to pause,” he said.

A Middle East agreement could likewise change the inflation picture by reducing energy prices, he said.

“If there’s an agreement in the Middle East, it could bring energy prices down very quickly again,” he said.

Stournaras also welcomed this week’s Federal Reserve rate increase, saying it supported confidence in monetary policy beyond the United States.

“The Fed’s rate decision was positive for its credibility and for the credibility of monetary policy worldwide, because of the central role played by the Fed and the dollar,” he said.

On financial conditions, Stournaras said there had so far been no major disruption and urged governments to maintain fiscal discipline.

“Up to now at least, we haven’t seen any big turmoil,” he said. “I hope governments continue to be aware of the need to be fiscally prudent given our past experience with policies that aren’t careful enough.”