ECB is back to square one as US-Iran war resumes

[BRUSSELS] The European Central Bank is back to square one in its fight against high inflation in the eurozone after new hostilities between the US and Iran caused energy prices to rise again, ECB policymaker Yannis Stournaras said on Friday (Jul 10).

The ECB raised rates at its June 10-11 meeting and investors expect it to do so twice more over the next year to contain the fallout from the Iran war on fuel costs.

“Hostilities started again,” Stournaras, the Greek central bank governor, told an event in Greece. “So we’re back to square one and that shows how precarious and volatile is the situation in the Middle East and, as a consequence, it also shows the uncertainty surrounding inflation forecasts and therefore the challenges that policy has to face.”

An unexpectedly rapid retreat in energy prices following a ceasefire deal between the US and Iran had taken pressure off the ECB to lift rates again at its next meeting on July 22-23, though the case for a hike later on remained firm, four sources told Reuters last week.

But traders have ramped up their bets on ECB hikes again in recent days on signs that the deal to end hostilities is in jeopardy. REUTERS