ECB Executive Board Member Cipollone Signals Growing Probability of Interest Rate Hikes

European Central Bank Executive Board member Piero Cipollone has indicated that the likelihood of increased borrowing costs in the eurozone is growing, as the conflict involving Iran pulls economic conditions away from the ECB's baseline scenario. "The current situation appears to be deviating from our baseline projections from March, increasing the possibility that we may need to adjust policy rates," the Italian official stated. He added that if persistent, the current shock could significantly impact the ECB's medium-term inflation goals and the economic outlook for the eurozone. However, Cipollone emphasized that compared to the last price surge in 2022, the ECB is now in a stronger position, allowing time to assess developments. He also cautioned against imposing "unnecessary costs" on the economy while working to bring inflation down to 2% in a timely manner. "No matter how prudently designed, monetary and fiscal responses to energy supply-side shocks are costly," said Cipollone, who is considered one of the most dovish members of the Governing Council, during a speech in Milan on Wednesday. Following its decision to keep borrowing costs unchanged last week, the ECB has signaled that it will consider raising interest rates at its next meeting in June. Slovak policymaker Peter Kazimir described such a move as "almost inevitable," a view shared by financial markets. Nevertheless, other policymakers have expressed more caution. The energy shock resulting from the conflict has pushed inflation to 3%, with potential for further increases. At the same time, it risks derailing the region's nascent economic recovery. Over the medium to long term—the primary focus for officials—the consequences remain uncertain. So far, there is little evidence that rising energy prices are generating significant second-round effects. An indicator of eurozone wage growth released by the ECB earlier on Wednesday did not show any worrying acceleration in wage increases during the second half of 2026. "We are closely monitoring signs that inflation expectations could become unanchored or that economic momentum could be disrupted," Cipollone noted. "To date, medium-term inflation expectations remain firmly anchored, and core inflation measures continue to hover near our target."