ECB Will Stay Vigilant as Iran War Flares Up Again, Nagel Says

The European Central Bank is keeping a close eye on energy costs after renewed Middle East fighting increased geopolitical uncertainty again, Governing Council member Joachim Nagel said.

(Bloomberg) — The European Central Bank is keeping a close eye on energy costs after renewed Middle East fighting increased geopolitical uncertainty again, Governing Council member Joachim Nagel said. The past few weeks “have been marked by hopes and disappointments,” the Bundesbank president said in an emailed statement.

The resumption of war between the US and Iran underscores that the situation remains volatile, he added. “The development of energy prices is a decisive factor in determining the future inflation outlook,” Nagel said. “Monetary policy will maintain its vigilant stance.”

The comments arrive on the eve of a quiet period ahead of the ECB’s July 22-23 meeting, where officials are widely expected to keep interest rates unchanged. Investors still expect policymakers to increase them again later this year to contain inflation pressures sparked by the Iran conflict. Austrian central-bank governor Martin Kocher and ECB Executive Board member Piero Cipollone said in separate newspaper interviews that they’re not yet seeing any second-round effects like rising wages that could entrench price pressures.

Kocher reiterated that the next decisions will focus on either maintaining or raising borrowing costs. Nagel emphasized that after June’s decision, borrowing costs are now at an “appropriate” level and that the Governing Council will continue to take all relevant data into account at its next meetings. “From a monetary policy perspective, it remains advisable to react with caution but, if necessary, to act decisively,” he said.

—With assistance from Jana Randow.