European Central Bank (ECB) executive board member Isabel Schnabel on Thursday suggested the bank was likely to continue raising key interest rates in a bid to bring down inflation, after having hiked rates for the first time since 2023 earlier this month in response to the Iran war.
"To bring inflation back to our target of 2% in the medium term, we will, as things stand, have to raise interest rates further," Schnabel told German weekly Die Zeit.
She added that the extent and timing of further hikes would depend on how the conflict in the Middle East as well as the economy and inflation unfold.
Schnabel stressed that, from the ECB's point of view, the recent ceasefire in the Iran war did not mean the all-clear for the economy, even though energy prices had fallen as a result of the memorandum of understanding signed by the United States and Iran last week.
The ECB had raised its benchmark deposit rate from 2% to 2.25% on June 11, marking the first hike in interest rates since September 2023 as the Frankfurt-based bank outlined its response to the economic fallout from the conflict in Iran.
The ECB previously left the interest rate paid to commercial banks on funds parked with the ECB at 2% for seven consecutive meetings, but the conflict in the Middle East has fuelled fears of a wave of inflation due to the blockade of the Strait of Hormuz, a crucial waterway for the global oil and gas trade.
Schnabel defended the U-turn, which came as oil prices had begun to stabilize again.
Without tightening monetary policy, inflation would remain above the ECB's 2% target in the medium term, she said.
The ECB, which is responsible for monetary policy in the 21-member euro currency area, expects higher inflation and slower growth in the eurozone as a result of the war in Iran.
The most likely scenario forecast by the bank predicts inflation to rise to 3% this year. Oil prices, which temporarily skyrocketed after the US and Israel began attacking Iran on February 28, pushed inflation in the eurozone to 3.2% in May.
