Key insights
- ECB's de Guindos advocates for caution on interest rate decisions due to the uncertainty surrounding the Iran war and its impact on energy prices and inflation. He highlights risks to Eurozone financial stability, including high market valuations and loose fiscal policy. This suggests a potentially slower pace of rate hikes, which could negatively impact US equities by supporting a stronger dollar and potentially weakening global growth.
FRANKFURT, April 21 (Reuters) - The European Central Bank must be cautious when setting interest rates, given the great uncertainty associated with the war in Iran, ECB Vice-President Luis de Guindos said on Tuesday.
The ECB is due to meet next week and policymakers, including President Christine Lagarde on Monday, have been suggesting they did not have enough evidence yet to raise rates to quell an energy-fuelled rise in inflation.
De Guindos, too, called for caution and said the ECB should focus on whether more expensive oil and gas were raising other prices.
"I believe we need to be cautious, keep a cool head and analyse the data in a context of tremendous uncertainty," de Guindos told an event in Spain.
He echoed colleagues in saying that energy prices were at present between the ECB’s baseline projections, which only see a temporary rise in inflation, and an adverse scenario with larger and more enduring spillovers.
De Guindos also warned about three sources of risk to financial stability in the euro zone: high market valuations, loose fiscal policy in some countries, and trouble in private credit.
He is due to present the last Financial Stability Review of his mandate as an ECB board member on May 27, before stepping down at the end of that month.