European Central Bank (ECB) Governing Council member Martin Kocher stated that there is no need to delay interest rate hikes if energy prices do not improve swiftly, highlighting the central bank's readiness to act in response to persistent inflation risks [1]. Kocher noted that the economic recovery is now threatened and inflation risks are rising amid the ongoing Middle East conflict, which could potentially lead to a stagflation trend, despite the current resilience in the economy and labor market [1].
Kocher emphasized that the length of the conflict will be a decisive factor in shaping the ECB's policy response. He recalled that in April it was reasonable to delay interest rate hikes, but current circumstances may warrant a different approach if energy prices remain high [1]. He warned that a prolonged Iran conflict and sustained high energy costs could increase the risk of second-round effects on inflation [1].
The ECB will remain vigilant and is prepared to act promptly and decisively if necessary. Kocher also pointed out that medium- and long-term inflation expectations are more crucial for interest rate decisions, and while there are initial signs of change, no major shifts have been observed yet [1].
In terms of market reaction, the EUR/USD pair was down 0.26% on the day at 1.1755 at the time of reporting [1].
CONCLUSION
ECB's Kocher signaled a potential shift toward rate hikes if energy prices do not improve, citing rising inflation risks and the impact of the Middle East conflict. The market responded with a decline in the EUR/USD pair, reflecting investor caution amid uncertainty over future ECB policy moves.