De Guindos Calls for Caution on Interest Rates

Luis de Guindos, Vice President of the European Central Bank (ECB), urged caution in setting interest rates due to the uncertainty surrounding the situation in Iran.

The ECB is scheduled to meet next week on Thursday, April 30. Recent statements from ECB officials, including President Christine Lagarde, suggest that the central bank is not yet ready to raise rates to address a spike in inflation fueled by higher energy prices.

In March, Eurozone inflation exceeded expectations, reaching 2.6% after 1.9% in February, well above the ECB’s target of 2% in the medium term.

De Guindos also emphasized the need for caution, focusing on determining whether the rise in oil and gas prices is leading to an overall increase in prices.

“I think we need to be cautious, keep a cool head, and analyze the data in a context of great uncertainty,” he stated at an event in Spain.

He, like other ECB officials, pointed out that energy prices are currently situated between a more positive base scenario and a less favorable one marked by more significant and lasting impacts. The ECB’s base scenario only anticipates a temporary increase in inflation.

De Guindos also highlighted three sources of financial stability risks in the Eurozone: high market valuations, perceived lax fiscal policies in some countries, and challenges in private credit.

The ECB Vice President, set to leave his position at the end of next month, will present his final financial stability report on May 27.

Reporting by Francesco Canepa; Editing by Claude Chendjou, translation by Blandine Hénault