ECB monitors impact of Iran conflict on inflation and interest rates

The European Central Bank is preparing for its upcoming meeting, with the primary focus on the potential inflationary impact of the ongoing conflict in Iran. ECB President Christine Lagarde and board members, including Madis Muller and Isabel Schnabel, have addressed the risks of repeating the 2022 inflationary shock, though they stress the need for a non-precipitate approach. Peter Kazimir noted that while there is no immediate need for action next week, the ECB is prepared to raise rates if economic conditions deteriorate. Market participants have increased their expectations for rate hikes, with a 60% probability estimated for an increase by June and a 35% probability for a second hike later this year. These projections were influenced by fluctuations in energy prices, which eased slightly on Wednesday. Official updates regarding Eurozone inflation and growth forecasts will be the focal point of the meeting. The ECB is currently maintaining a wait-and-see policy to accurately assess the duration and intensity of the energy market instability before committing to permanent adjustments.