ECB board member Wunsch: If the Middle East conflict continues until June, the probability of a rate hike will be "very high".

European Central Bank Governing Council member Pierre Wunsch stated that if the conflict related to Iran is not resolved before June, there is a very high possibility that the ECB will increase borrowing costs next month. The Belgian central bank governor bluntly said in an interview that the current geopolitical conflicts have put the ECB in a situation where inflationary concerns are beginning to emerge. He believes that market expectations of three 25 basis point rate hikes by the ECB this year are reasonable. Wunsch stated in Frankfurt on Wednesday, "If the conflict is not resolved by June, I think the likelihood of a rate hike is quite high. At some point, we have to take action because the inflation rate has already reached 3%." Although the conflict poses a challenge to economic growth, ECB officials are currently trying to assess whether the price pressures caused by the conflict are enough to support a rate hike. While analysts and investors are betting on a rate hike next month, several policymakers seem to have not yet finalized their positions. In addition to high inflation and weak economic growth, the ECB also needs to address the bond sell-off caused by the lack of progress in US-Iran negotiations and persistently high energy prices. Some analysts believe that there is still room to raise rates from 2% to 2.5%, with 2.5% being the upper limit of the neutral range for economic impact. Wunsch revealed that at the ECB's latest policy meeting in April, he was leaning towards a rate hike; at the same time, he admitted that it is currently difficult to determine the duration of the pressure on rising prices. Regarding the inflation trend, he said, "The sudden surge in inflation in 2022 caught the market off guard, but this time the market has already anticipated it, and various sectors may respond more quickly." Wunsch stated that the wage inflation situation is generally stable at the moment; although he acknowledges that the conflict in the Middle East has brought many economic shocks, concerns about stagflation risks have been mitigated at this stage. "The euro area is entering a phase of low growth and high inflation, but overall it is just an economic slowdown, not a recession." In Wunsch's view, there are still many uncertainties in the geopolitical situation and there is still room for adjustment in the market's rate hike expectations. He also warned the market not to be overly optimistic: "The intensity of future rate hikes can vary, depending on how the situation evolves. From the current market pricing, it can be seen that people expect this conflict to be resolved soon."