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| ECB should raise rates even in case of agreement with Iran |
| Frankfurt am Main, 26.05.2026 |
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| The European Central Bank (ECB) is expected to raise interest rates in June even if a deal is reached with Iran to end the war. The conflict has been going on for much longer than expected and high energy prices are already spilling over into the wider economy, ECB Executive Board member Isabel Schnabel said on Tuesday. TASR reports on this based on a Reuters report.
"Given the scale and duration of the current shock, a reassessment (of monetary policy) is no longer just a matter of possibility in my opinion. I think an increase in the main interest rate in June will be necessary," Schnabel said in an interview with Reuters.
Although the US has signaled progress in negotiations with Iran, Schnabel, who could replace ECB President Christine Lagarde next year, added that the ECB is probably "past the point of no return." The reason is damage to energy infrastructure and the spillover of high energy prices into the economy.
“Even if the war were to end today, the damage to energy infrastructure and supply networks would be extensive. I am therefore convinced that a monetary policy response would also be necessary,” Schnabel said. “In terms of the duration of the conflict, we have already gone beyond the scenario that assumes a rapid normalisation of prices,” she added.
Eurozone inflation reached 3% in April and is expected to accelerate further. Bankers fear that high energy costs will lead to further price increases for goods and services, setting off an inflationary spiral. According to Schnabel, some of these second-round effects are already starting to show, as indicated by several surveys, including the ECB’s survey of consumer expectations, data on activity in the manufacturing and services sectors and the European Commission’s eurozone sentiment indicator.
“We are seeing more and more signs that this shock is already spilling over into other parts of the consumer basket,” Schnabel said. She added that the ECB should not commit to any further steps after the June meeting and rather assess the situation at each meeting based on the latest economic data. However, she admitted that the ECB’s baseline projection is for two interest rate hikes this year, meaning that one tightening of monetary policy is unlikely to be enough.
Financial markets are also counting on two hikes. Moreover, the ECB could raise its key interest rate a third time next year, with the probability of such a move set at 50%.
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