ECB Governing Council member Christodoulos Patsalides, Governor of the Central Bank of Cyprus, cautioned against precipitous interest rate hikes despite escalating pressures from geopolitical tensions. In an interview with Reuters published on March 27, 2026, Patsalides underscored the need for comprehensive data before any policy shift, saying, "I would not rush into any decision."
With energy prices rising because of the US-Israeli war with Iran, euro zone inflation was expected to exceed the ECB's 2% target as early as March. Patsalides said he would not hesitate to raise rates if there were evidence of inflation becoming entrenched, but that there was no such evidence for now. "We don't have sufficient information to make a decision as to whether this should be looked through or whether we should be making a decision on interest rates," he said, advocating for wisdom derived from facts rather than "gut feeling."
ENERGY SHOCKS TEST ECB RESOLVE
Under the ECB's baseline scenario, inflation is expected to exceed 3% in the second quarter before returning to target a year later, while adverse scenarios show deeper and longer overshoots. Days earlier, ECB President Christine Lagarde said in Frankfurt that the ECB would respond forcefully or persistently if inflation stayed well above 2% for long, and that even a large but not very persistent overshoot could warrant some measured policy adjustment. Patsalides acknowledged that headline inflation could face upward pressures from these shocks, but stressed there is currently no concrete evidence of it permeating core measures—those excluding volatile energy and food components.
Patsalides kept the door ajar for policy adjustments but conditioned any move on clear signs of headline pressures feeding into core inflation. He did not rule out a move in April, noting the ECB can change rates at any meeting. "I prefer to be more cautious," he said.
BASELINE OUTLOOK HOLDS FIRM
Patsalides said the ECB's baseline scenario still holds, while acknowledging that risks are tilted towards higher inflation.
Bundesbank President Joachim Nagel and other officials have left open a rate hike as early as April if the price outlook worsens. Patsalides warned that lingering memories of the 2021-2022 inflation shock could lead households and firms to adjust their price and wage expectations faster.
MARKETS WEIGH VOLATILE BETS
Markets were pricing three ECB rate hikes this year, starting in April or June. The ECB's next policy meeting is on 30 April, when an updated scenario analysis of inflation and growth projections is expected.