The European Central Bank has several options for dealing with the Middle East war energy shock, its chief Christine Lagarde said Wednesday, vowing policymakers would not be “paralysed by hesitation”.<\/p>\n
The conflict, which began at the end of February with US-Israeli strikes on Iran, has sent oil and gas prices surging due to the near total closure of the Strait of Hormuz and attacks on Gulf energy targets.\u00a0<\/p>\n
Saying the world was facing “profound uncertainty”, Lagarde insisted the ECB was well positioned to deal with the turmoil, with inflation currently close to its two-percent target and the eurozone economy on a sound footing.<\/p>\n
“We have a graduated set of options for responding,” she said in a speech in Frankfurt, where the ECB has its headquarters.<\/p>\n
She stressed that policymakers “will not act before we have sufficient information on the size and persistence of the shock.\u00a0<\/p>\n
“But we will not be paralysed by hesitation: our commitment to delivering two percent inflation over the medium term is unconditional.”<\/p>\n
At its most recent meeting last week, the ECB kept interest rates on hold as expected, while warning of higher inflation and lower growth due to the war.<\/p>\n
But analysts have raised their bets on the central bank hiking borrowing costs as soon as next month in a bid to keep the lid on an expected surge in consumer prices.<\/p>\n
Higher global oil and gas costs have led to immediate petrol price hikes in the eurozone, and rekindled memories of the energy shock that followed Russia’s 2022 invasion of Ukraine.<\/p>\n
At that time, the ECB faced fierce criticism for failing to hike borrowing costs quickly enough to tame runaway price rises.<\/p>\n
But Lagarde sought to downplay the similarities with that period.<\/p>\n
“The initial shock has so far still been smaller,” she said, while adding the backdrop now was more “benign”.<\/p>\n
When Russia throttled gas supplies to Europe after the start of the Ukraine war, inflation was already higher due to post-pandemic supply chain problems and the economy was facing labour shortages, she said.<\/p>\n
Now, the eurozone economy is on a sounder footing and inflation has been around the ECB’s target for some time, she stressed.<\/p>\n
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