ECB Vice President Urges Caution on Rate Path Amid Geopolitical Volatility

European Central Bank Vice President Luis de Guindos has called for a measured approach to monetary policy, emphasizing the need for prudence in the face of significant geopolitical uncertainty. Speaking in Madrid on Tuesday, de Guindos stressed that the central bank must "keep a cool head" while analyzing economic data. The primary driver for this cautious stance is the ongoing instability surrounding the war in Iran. De Guindos acknowledged that the ECB's tools are limited when dealing with external supply shocks, noting that monetary policy cannot entirely prevent the initial spike in prices caused by geopolitical disruptions. Despite these limitations, the Vice President argued that the ECB's role remains critical in managing the aftermath of such shocks. He specifically pointed to the importance of preventing "second-round effects," which occur when initial price hikes lead to broader wage-price spirals. By focusing on the "de-anchoring of inflation expectations," de Guindos signaled that the ECB will prioritize long-term price stability over rapid rate adjustments. This suggests a flexible but cautious trajectory for Eurozone rates as the bank monitors the conflict's impact on energy and commodity prices.