PARIS/FRANKFURT — The president of the European Central Bank expressed cautious optimism Monday over a reported U.S.-Iran ceasefire, while a fellow policymaker warned that high inflation across the euro zone is far from over.
ECB President Christine Lagarde welcomed the overnight announcement that U.S. and Iranian officials had reached a preliminary agreement to end their conflict and reopen the Strait of Hormuz — a critical passage for global energy shipments. The news sent oil prices lower and caused financial investors to scale back their expectations for future ECB rate hikes.
“If this news is confirmed by developments in the coming days and the signing of a memorandum of understanding … it is good news. We can only welcome it,” Lagarde said in an interview on France Culture radio.
The ECB had raised interest rates for the first time in nearly three years just last week, aiming to slow inflation that has been driven higher by energy supply disruptions tied to the Iran conflict.
Investors who had largely anticipated two more rate hikes over the coming year pulled back those expectations on Monday, now pricing in just one additional increase with only a slim chance of another move beyond that.
Speaking separately in Frankfurt, ECB Governing Council member Joachim Nagel acknowledged that financial markets appeared to be betting on a lasting resolution to the Iran conflict. But he urged caution, saying that even if the Strait of Hormuz were to reopen in the near term, it would take months for oil supply to return to pre-war levels.
“No relief is in sight for the foreseeable future,” said Nagel, who leads Germany’s Bundesbank. “On the contrary: even if the Strait of Hormuz were to become navigable again soon, it will take months for the oil supply to return to normal.”
Nagel said euro zone inflation would remain elevated even under the ECB’s more optimistic scenario, in which energy prices decline more quickly. He also noted that inflation could actually climb again once government measures designed to cap energy costs expire. Those measures — which include a fuel price discount at the pump in Germany — had reduced the euro zone’s inflation rate by 0.4 percentage points in May, he said.
The German central banker said all options remain on the table for the ECB’s next policy meeting on July 22-23, including both holding rates steady and raising them further.
Lagarde also tempered her optimism, noting in her radio interview that “the whole question of uranium enrichment remains to be debated, agreed and concluded in the form of an agreement.”
