Key insights
- Escalating tensions in Iran are driving up oil prices, threatening to increase inflation and depress economic activity in Europe. The Bank of Spain advocates for targeted economic measures. The ECB is holding rates steady but may consider hikes due to rising inflation. This situation poses a downside risk to US equities due to potential global economic slowdown and tighter monetary policy.
MADRID, March 20 (Reuters) - Spain should ensure any measures to cushion the economic impact of the war in Iran are tailored to help the hardest‑hit sectors and households and last only as long as needed, Bank of Spain Governor Jose Luis Escriva told EFE.
Oil and gas prices have jumped since U.S.-Israeli attacks on Iran began, raising the risk that higher energy costs will drive up consumer prices and depress economic activity across the 21-nation currency bloc, which relies heavily on imported fuel.
"In situations of this nature, the measures adopted must be very clearly defined to protect those areas of the economy and society that are most affected", Escriva told state-news agency EFE in an interview published on Friday.
The Spanish government is set to approve at an extraordinary cabinet meeting on Friday a plan to help households and business weather the impact from higher energy prices.
The ECB kept its key interest rate at 2% on Thursday, but policymakers expect to discuss hikes in the coming months as the Iran war pushes up inflation in the euro zone.
Escriva said it was "very difficult to discern exactly what the impact of this rise in energy prices will be" and insisted that "the ECB makes decisions based on the medium-term evolution of inflation and sometimes there are situations that subside and do not necessarily entail a change in interest rates."
He also said that the situation was "highly uncertain and volatile and what we must do is continue to assess a wealth of information."