Friedemann Vogel / EPA
The president of the European Central Bank, Christine Lagarde.
The president of the BC does not say whether new interest rate increases are planned, but guarantees that the institution is better prepared to contain the spike in inflation than in 2022.
The European Central Bank (ECB) says it is in a better position to protect the euro zone from inflationary shocks triggered by the US and Israeli attacks on Iran than during the economic turmoil that followed the invasion of Ukraine.
ECB President Christine Lagarde stated that the region now has a greater economic resilience to avoid a repeat of the strong price rises seen in 2022 and 2023.
“We are in a different economic situation, in a better situation, and we have a greater capacity to absorb shocks,” he told France 2 on Tuesday. “We will do whatever is necessary to ensure that inflation is under control and that the French and Europeans do not suffer inflationary increases like the ones we saw in 2022 and 2023.”
Recent developments in energy markets have fueled concerns that inflation, which had recently stabilized at the ECB’s 2% target, could rise again. The war in Iran and the blockades in the Strait of Hormuz have caused sharp increases in oil prices, raising fears that the inflation of energy costs will cause a domino effect that will drive up the prices of all other consumer products.
Financial markets reacted quickly to geopolitical tensions. Initially, investors raised their expectations that the ECB would raise interest rates this yeareven predicting two increases of 0.25 percentage points in the deposit rate. However, those bets eased after Donald Trump suggested earlier this week that the conflict, reducing the perceived need for aggressive monetary tightening.
Turmoil was also evident in oil markets earlier this week. Prices soared to almost 120 dollars per barrel during Monday’s intense morning trading session, levels not seen since mid-2022, before quickly reversing trend later in the day.
Lagarde emphasizes that political decision-makers are closely monitoring the situation, which will be discussed at the monetary policy meeting scheduled for March 18 and 19. “Today, there is so much uncertainty that we would be unable to say precisely what we will decide. Let’s not rush in a decision because there is a lot of uncertainty, a lot of volatility”, he anticipates.
The next ECB meeting will also include updated quarterly economic forecasts. However, Lagarde acknowledged that the assumptions behind these projections may already be outdated due to the rapid evolution of the crisis in the Middle East. As in previous periods of great uncertainty, the central bank is expected to prepare alternative scenarios to guide its policy response.
