In an interview, European Central Bank policymaker Olli Rehn stated that the ECB might raise interest rates to improve its credibility in the face of conflict-driven fuel cost increases, but there are currently few signs that high inflation is taking root in the eurozone. With oil prices surging due to the Strait of Hormuz disruption and pushing eurozone inflation well above the central bank's 2% target, the ECB will almost certainly raise interest rates at its next meeting on June 11.

Economic Outlook: Sliding toward a "negative scenario," but the second-round effects have not yet materialized.

Rehn echoed the views of several colleagues, stating that the eurozone is sliding toward a “negative scenario” for the European Central Bank – slower growth and rising inflation, which could force the bank to raise interest rates “for the sake of credibility.” However, he noted that natural gas prices have not risen significantly, wage growth is still slowing, and long-term inflation expectations, while rising in the short term, remain anchored around 2%.

“From a medium-term perspective, the key questions are whether we can see clear signs of a second-round effect and/or whether inflation expectations have decoupled,” Raine said in an interview. “If we look at these two aspects, we will see some fluctuations in short-term inflation expectations, but no significant deviation in medium- to long-term inflation expectations.”

June meeting decision: Interest rate hike almost certain, but subsequent commitments remain uncertain.

Sources indicate that the case for a June rate hike is almost settled, but the European Central Bank is unlikely to commit to further rate increases in the future. Financial markets expect one or two more rate hikes in the next 12 months, bringing the ECB's deposit rate to 2.50%-2.75%.

Rehn stated that the June decision will also take into account the ECB's new economic forecasts, as well as any new developments regarding a possible ceasefire between the US and Iran.

Scenario Study: Long-Term Conflict Requires a "Plan B," Green Transition Remains the Direction

Rehn believes the situation in Iran will either escalate into a protracted conflict, further hindering energy supplies to the eurozone, or de-escalate within a ceasefire, reopening the Strait of Hormuz. "If I were to assess either possibility, I think we'd better prepare for a protracted conflict and consider how to adjust and mitigate its impact, including continuing to advance the green energy transition," he said.

Rehn added that this means a "Plan B," led by the European Commission, is needed to find alternative sources of aviation fuel and other products currently supplied through the Gulf region during the economic adjustment period. At the same time, he believes governments should avoid stimulating fuel demand through overly generous subsidies, especially given the limited fiscal space available for doing so.

Regional differences: Northern Europe was less affected, while Germany, Italy, and Central Europe were more severely impacted.

He pointed out that the Nordic countries, France, and the Iberian Peninsula, due to their greater reliance on nuclear and renewable energy, will be somewhat protected from energy shocks; while Germany, Italy, and Central European countries will be more severely impacted. "For this reason, the impact of energy price shocks will obviously vary greatly across different regions," he said. "And this will have an impact on monetary policy."

Officials' hawkish statements are becoming more consistent.

Several European Central Bank officials have recently made statements, and their positions are highly consistent:

Austrian central bank president Robert Kocher stated that unless the Middle East conflict eases and the Strait of Hormuz reopens to navigation, the European Central Bank "has no choice but to raise interest rates." He emphasized that to avoid raising rates, "clear signs of the Strait of Hormuz reopening to navigation in some form" are necessary.

Belgian central bank governor Winsch warned that if the US-Iran conflict continues into June, the possibility of an interest rate hike is "quite high," and believes that the market's expectation of three rate hikes this year is "reasonable."

Bundesbank President Nagel also publicly stated that given the more persistent energy supply shock and the fact that inflation is deviating from the ECB's baseline scenario, "we have to take some action."

Finnish central bank governor Rehn took a more dovish stance, noting that the eurozone is sliding into an "adverse scenario" (slower growth and rising inflation), which could force it to raise interest rates "for the sake of credibility." However, he emphasized that current natural gas price increases are not significant, wage growth is still slowing, and long-term inflation expectations remain anchored at around 2%.

Interest rate hikes are imminent, but the subsequent path depends on the evolution of the conflict and the second-round effect.

In conclusion, a June rate hike by the European Central Bank (ECB) is almost a certainty, primarily driven by the surge in energy prices triggered by the disruption of the Strait of Hormuz. However, Rehn's statements revealed caution: while inflation is high in the short term, the second-round effects have not yet become apparent, and long-term inflation expectations remain anchored at 2%. He tends to prepare for prolonged conflict while emphasizing the importance of a green transition. Regional differences in energy structures mean that countries reliant on traditional energy sources, such as Germany and Italy, will face greater pressure. For the market, the ECB's rate hike path remains highly uncertain, and its future direction will depend on the progress of the US-Iran ceasefire, whether inflation spreads to areas such as wages, and the actual performance of the Eurozone's economic growth.