European Central Bank Governing Council member Joachim Nagel stated that the ECB will continue to analyze the economic situation before deciding next month whether to raise interest rates; however, policymakers must act if the conflict in Iran threatens price stability.
Nagel, who is also the President of the Bundesbank, said in Zurich on Tuesday that the ECB discussed increasing borrowing costs at its last meeting in April and now needs to observe the scale and duration of the impact of the Middle East conflict on inflation and economic growth.
"We will meet again in June, and we will make our decision based on the new data at that time," he said during a panel discussion. "If these effects prove to be significant or long-lasting, particularly if they risk destabilizing long-term inflation expectations, then, in line with our mandate, we must act."
The conflict has led to a surge in energy costs, pushing inflation to 3%, and the ECB has indicated it will consider raising interest rates on June 11. Most economists and investors predict a 0.25 percentage point rate hike at that meeting.
Nagel, one of the more hawkish members of the ECB Governing Council, said on Tuesday that monetary tightening is one of the central bank's fundamental policies.
He added, "The baseline already incorporates two policy rate increases because that was the market expectation at the time the forecast assumptions were made."
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