FRANKFURT, March 26 (Reuters) – The European Central Bank has “an option” to raise interest rates at its next meeting if war in the Middle East raises the spectre of an inflation surge in the euro zone, ECB policymaker Joachim Nagel told Reuters.
The ECB has put rate hikes on the table after the conflict in Iran caused a spike in energy prices, with traders now speculating on whether the first move may come in April or at the following meeting in June.
Nagel, who heads Germany’s Bundesbank, said he and his colleagues will have enough information, both about the war and its impact on the economy, to decide on a potential rate hike at their April 29-30 gathering.
“It is certainly an option, but just one option,” he said of an April rate hike during an interview.
“I think we’ll have enough data by April to determine whether we need to take action or whether we can wait and see. But we shouldn’t shy away from it now just because we think it’s still too early,” he added.
ECB President Christine Lagarde said on Wednesday the central bank for the 21 nations that share the euro was prepared to act at any meeting to keep inflation at its 2% target.
The surge in the price of oil and gas is a big blow for the energy-importing euro area. In addition, the closure of the Strait of Hormuz has choked the supply of some chemicals such as fertilisers.
Nagel said he and his colleagues would look for signs of price hikes beyond the energy sector and of rises in wages, which would suggest that higher inflation was taking root in the euro zone.
“This is certainly a situation in which every passing day contributes to an increase in inflationary risks, particularly with regard to what interests us most from a monetary policy perspective: how medium-term inflation expectations will evolve,” he said.
Traders price in two or three hikes to the ECB’s policy rate by the end of the year, which would leave it at 2.50% or 2.75%.
(Writing by Francesco CanepaEditing by Gareth Jones)
