Key insights
- ECB's Stournaras suggests a cautious tightening of monetary policy if Eurozone inflation temporarily exceeds the 2% target, particularly due to supply shocks like the Strait of Hormuz closure impacting energy prices. This hawkish stance, while aimed at controlling inflation, poses a slight downside risk to US equities as tighter global financial conditions can dampen risk appetite and potentially slow global growth.
European Central Bank policymaker Yiannis Stournaras said on Monday that if euro zone inflation overshoots the ECB target temporarily but significantly, there should be a cautious adjustment of monetary policy in a more restrictive direction.
Stournaras noted that the closure of the Strait of Hormuz amid the ongoing war in Iran has led to a spike in oil and natural gas prices, with a possible secondary effect on wages and prices of goods and services.
"In the event of a significant but temporary overshooting of the inflation target, the response should be balanced; a cautious adjustment of monetary policy in a more restrictive direction, capable of limiting the intensity of second-round effects, without, however, harming economic activity disproportionately," Stournaras said during a hearing in the Greek parliament.
It was necessary to ensure the return of inflation to the ECB's medium-term target of 2%, while not burdening economic activity and investment with an overly restrictive monetary stance, he added.
The Greek government last month proposed renewing the term of Stournaras as the governor of Greece's central bank.