ECB Executive Board Member: Even if Iran's nuclear deal is implemented, rate hikes are needed in June

European Central Bank (ECB) Executive Board member Isabel Schnabel, in an interview with Reuters, pointed out that the ECB needs to raise interest rates in June, even if a peace deal in the ongoing Iran negotiations is potentially reached, it won't stop this process. The current inflation rate in the eurozone has reached 3%, far exceeding the 2% target. Schnabel stated: "Given the scale and persistence of the current shocks, choosing to ignore is no longer an option. As far as I'm concerned, there will be a necessity to raise interest rates in June." She emphasized that even if the conflict ends today, the damage to infrastructure and global supply chains is already a fact.

The data survey shows that high energy costs have spread to other consumer goods categories. Schnabel warned of "signs that the shock is spreading to other parts of the consumption basket." The ECB's baseline forecast includes two interest rate hikes, suggesting that a single hike may not be sufficient. Financial markets have already fully priced in the expectation of two rate hikes and estimate a 50% probability of a third rate hike.

Corresponding to the upward inflation is weak growth. The European Commission forecasts only a 0.9% growth for the eurozone in 2026, and due to the decline in consumer confidence, the economy faces "the double risk of downward pressure on growth and upward pressure on inflation." Additionally, as a potential successor to ECB President Christine Lagarde next year, Schnabel has indicated that she is prepared to take up the position if invited.