!['I’d say a reaction by the ECB [on interest rates] is potentially closer than many people think,' said bank governing council member Peter Kazimir. Photograph: Martin Baumann/TASR via AP/PA](https://www.irishtimes.com/resizer/v2/FDYLWILGOM2UGCCA6RDZ5KWUJY.jpg?auth=bb247e0edd22512464502b5b6de713ed98dbd0b6516bf360064337208cf84732&smart=true&width=1024&height=779)
Since the Iran war began, one of the key questions for those not in the actual line of fire has been what impact it will have on the world economy.
In a vacuum, conventional wisdom may have pointed to the war leading to slowing economic activity thus prompting central banks to cut interest rates. Wars, though, are not fought in vacuums, especially in the Middle East. The knock-on impact on oil prices may not have been catastrophic yet, but the threat is there in spades. Brent Crude is trading in the low $90 range for now and may well bounce higher again.
That raises the spectre of stagflation, with higher energy costs boosting inflation even as economic activity slows. It’s a worst nightmare scenario for most central bankers and it appears that, for now, they are more focused on controlling prices than worrying about economic growth.
On Wednesday, European Central Bank (ECB) governing council member Peter Kazimir of Slovakia warned that the Frankfurt-based bank could be closer to hiking rates than the market thinks.
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“I’d say a reaction by the ECB is potentially closer than many people think,” he said. “I don’t want to speculate about April or June. But we will be ready to act if needed.”
While Kazimir discounted the ECB making any move at its next interest rate setting meeting in a week’s time, it’s clear that, for him at least, an increase is definitely on the menu.
“The balance of risks regarding inflation has clearly shifted to the upside,” he told Bloomberg News. “We can forget about all the discussions about an inflation undershoot.”
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Kazimir has always been one of the more hawkish of the ECB’s rate setters, but the fact that he has essentially only an April rate increase on the table is evidence enough of the impact of the war. A month ago, he told Reuters he saw little reason to change policy. At that time, most traders expected the ECB to hold rates for all of this year and then increase in 2027.
One wonders what the impact of the inflation crisis of 2021 and 2022 has had on this debate. Spiralling prices were a memory of decades past until that point. Central bankers the world over were badly caught out then; it seems they are determined not to repeat the same mistakes.
