FRANKFURT, March 19 (Reuters) – The European Central Bank may need to begin discussing interest rate hikes in April and possibly tighten policy at their following meeting in June, unless the Middle Eastern conflict is quickly resolved, three sources told Reuters.
The ECB kept its key interest rate at 2% on Thursday and warned that the war in Iran was clouding the outlook for growth and inflation in the euro zone by pushing up the cost of energy.
The sources with direct knowledge of the discussion said that the recent escalation of the war made their central or ‘baseline’ scenario for the economy already outdated, so they may have to stat debating policy tightening at the April 29-30 meeting, barring a quick resolution of the conflict.
But they thought a policy move was more likely in June, when the ECB will have more information on the trajectory of energy prices and their impact on the rest of the economy.
An ECB spokesperson declined to comment.
Still, the sources noted that a hike as early as April could not be discarded, but that would require energy prices to surge even further, with one of the sources mentioning a $200 per barrel oil price as a trigger.
The ECB published baseline projections based on Brent crude at $81.3 a barrel this year and close to $70 in the following two — an assumption that some sources described as outdated with that price currently at $110.
The ECB said a severe scenario, which sees crude peaking at almost $150 per barrel by June, would likely require “tighter monetary policy”.
(Reporting by Balazs Koranyi and Francesco Canepa)
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