Stournaras: ECB Will Likely Raise Rates if Iran Conflict Persists

The European Central Bank will likely need to raise interest rates next month, Bank of Greece Governor Yannis Stournaras said, according to Bloomberg. Stournaras, who also sits on the ECB’s Governing Council, argued that the institution’s credibility leaves policymakers little choice as long as the US-Iran conflict continues to threaten price stability across the euro area. He made the remarks in Nicosia, Cyprus, where he was attending a meeting of European finance chiefs. According to Bloomberg, he said the ECB’s commitment to price stability was now being tested.

“An interest-rate hike comes at a cost, for people, for employment, and that’s why I wish we didn’t have to do it,” he underlined. “But if the situation continues and we don’t, it’s going to be problematic. For the credibility of the ECB and our reaction function, we will probably have to raise rates in June.”

The ECB has already signaled that a rate increase is under serious consideration. Governing Council members have made clear since their last meeting that such a move would be unavoidable if the Strait of Hormuz remains blocked,