European Central Bank Executive Board member Isabel Schnabel warned Friday that the institution should not rush into policy action in reaction to the Iran war, advocating a deliberate, evidence-based approach to monetary decisions.
Speaking in Zurich, Schnabel acknowledged that Europe is confronting a substantial energy price shock that has led to a sharp rise in investors' inflation expectations. Despite the pronounced market reaction, she said the ECB must weigh its options carefully rather than act precipitously.
"We have to be agile, we have to be vigilant, but there is no need to rush into action," Schnabel said, marking her first public remarks since last week's decision to hold borrowing costs steady.
Described within policy circles as the ECB's most hawkish rate-setter, the German executive emphasized that the bank has the latitude to study incoming data and evaluate whether the shock is producing broader effects. That work includes looking for signs of so-called second-round effects, assessing demand conditions, and determining whether the shock is becoming embedded in inflation expectations and wage growth.
Schnabel's comments mirror the broader discussion inside the ECB on how to respond to the economic consequences of the conflict in the Middle East. President Christine Lagarde has indicated that officials will not move without sufficient information, even as some colleagues have signaled swifter action could be necessary.
Bundesbank President Joachim Nagel and other unnamed officials have suggested that a rate increase may need to be considered as soon as April. Schnabel reiterated the ECB's commitment to its inflation objective, saying the bank will do whatever is needed to ensure inflation stabilizes at 2%.
The current surge in energy costs draws a parallel to the inflation shock experienced in 2022 following Russia's invasion of Ukraine, and economic effects are already appearing. Belgian central bank chief Pierre Wunsch told Bloomberg Television on Friday that policy intervention would probably be required if the conflict persists beyond June. While he urged patience, Wunsch added that a move is possible next month if circumstances demand it.
With officials divided on timing but united on the need for data, the ECB faces a balancing act: remain responsive to acute inflationary pressures while avoiding premature tightening that could misread a potentially temporary shock.