By Ed Frankl
The energy-price shock from the Iran war is landing between the European Central Bank's baseline and adverse scenarios, its President Christine Lagarde said Tuesday.
The ECB last month published three scenarios of the impact of the Iran war on the eurozone. The adverse scenario predicts a sharper rise in inflation and lower growth than the baseline, though the impact wouldn't be as pronounced as its severe scenario.
"We are somewhere, I think, in between the baseline and the adverse scenario," she told Bloomberg News on the sidelines of the International Monetary Fund's Spring Meetings in Washington, D.C., though stressed that the scenario can change "every day."
The ECB's adverse scenario, which assumes sharper rises in energy prices as well as increased uncertainty, shows inflation at 3.5% this year, 0.9 percentage points higher than the baseline scenario, and gross domestic product growth at 0.6%, or 0.3 percentage points lower.
The ECB in March also published a more severe scenario, which incorporates a stronger and more persistent energy-price shock, greater uncertainty, and more spillover to second-round effects. For that, inflation would be at 4.4% this year and GDP growth at 0.4%.
"What it means for monetary policy is that...we have to be completely agile and ready to move in the direction that is required. And second, we have to be data dependent, as we have repeatedly said," Lagarde noted.
"It does not predicate, as we speak today, that we will go in one direction or the other. And it certainly doesn't determine a rate path that I can confirm today," she added.
While the ECB would need more data to inform monetary policy, Lagarde said the central bank wouldn't hesitate to act.
The IMF separately on Tuesday downgraded expected eurozone growth this year to 1.1%, from the 1.3% it expected in previous forecasts made in January, ahead of the surging oil-and-gas prices prompted by the conflict in the Middle East.
Lagarde also said she would complete her mandate as ECB president, which is due to end next year.
"When there are big clouds on the horizon, the captain does not leave the ship. And this captain is not going to leave the ship. Because I see clouds," she said.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
04-14-26 1129ET
