According to a report, European Central Bank (ECB) Governing Council member Yannis Stournaras warned that the central bank may be forced to increase borrowing costs if oil prices remain at current levels. “This situation falls between the second and third scenarios outlined by the ECB, rather than between the first and second,” he stated, referring to the baseline, adverse, and severe paths for growth and inflation presented by the ECB in March. The Governor of the Bank of Greece noted, “If this persists, the ECB will have no choice but to raise interest rates. However, we all hope to avoid such an outcome.” For most of the past three weeks, Brent crude oil has remained above $100 per barrel, as U.S. President Donald Trump has sought to pressure Iran into reopening the Strait of Hormuz. Markets and economists anticipate that the ECB will implement a 25-basis-point interest rate hike at its June meeting. Some policymakers have indicated that existing data already provide sufficient grounds for a rate increase, while others have suggested that a further deterioration in the economic outlook would be necessary to justify such action. Stournaras was cited as stating that persistently high oil prices would lead to economic slowdown and heightened inflation. The central bank governor remarked that if the rise in inflation is moderate, “we would see a small increase in interest rates.” He added that if inflation surges sharply and remains elevated for an extended period, “I fear we would be facing a different scenario.”
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