Iran’s war is jacking up Europe’s energy bills to crisis levels, threatening economic chaos, but top ECB officials just issued a blunt warning “ECB should not rush rate change even if Iran war could alter outlook,” . Two senior central bankers insist the bank must study the damage first before slashing rates, rejecting panicked calls for immediate action as $116 oil rocks markets.
Financial markets have recently increased expectations of a possible interest rate hike by the ECB as energy prices surged, raising concerns that higher fuel costs could push inflation upward across Europe. However, central bank policymakers emphasised the need for a measured approach while the economic effects of geopolitical developments remain uncertain.
Speaking at an economic conference in Vilnius, Gediminas Šimkusgovernor of the Bank of Lithuaniasaid the ECB should not react hastily to short-term market fluctuations caused by global tensions. “If you start thinking about monetary policy in the morning, you may end up with very different thinking in the evening,” Šimkus said, referring to the sharp volatility in energy markets. Oil prices rose to nearly $120 per barrel on Monday before falling to around $90 the following day.
Šimkus said the ECB would evaluate the potential economic consequences of developments in Iran at its upcoming policy meeting scheduled for March 19 but indicated that maintaining the current policy stance may be appropriate for now. “As for the coming meeting, we will of course discuss and try to assess all the possible implications of the events in Iran for the European economy,” he said. “But for the moment, we should stay our course.”
Market expectations for ECB policy have shifted significantly in recent days. Investors had previously anticipated that interest rates would remain steady throughout the year due to weak inflation, with only a small possibility of a rate cut. However, the recent spike in energy prices has increased speculation that inflationary pressures could return, prompting discussions of a potential rate hike later in the year.
At the same conference, Madis Müllergovernor of the Bank of Estoniaalso called for a cautious approach to policy changes. He said the central bank must first determine whether the current rise in energy prices represents a temporary shock or a more persistent trend affecting the broader economy.
“Even if we shouldn’t rush into decisions, the probability of the next change in the policy rates now being more towards an increase rather than the opposite has probably gone up in the last couple of weeks,” Müller said during a panel discussion.
He emphasised that policymakers should analyse whether the surge in energy prices proves temporary, noting that previous spikes in energy costs have eventually subsided. “We shouldn’t rush into any decisions,” Müller said. “We should first see if the increase in energy prices that we are now experiencing turns out to be transitory or not.”
The comments come as geopolitical tensions in the Middle East have unsettled global energy markets, raising concerns about supply disruptions and inflationary pressures in Europe. Higher energy costs can affect consumer prices, business expenses and overall economic growth, making them a key factor in central bank decision-making.
Officials at the European Central Bank have repeatedly emphasised that monetary policy decisions will be guided by economic data and inflation trends. The upcoming ECB meeting later this month is expected to assess the impact of recent global developments, including energy price movements and geopolitical risks, on the eurozone’s economic outlook.
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