ECB should be flexible as Iran conflict muddies outlook, Stournaras says

FRANKFURT, March 3 (Reuters) - The ‌European Central Bank ​should ​keep its options open in setting interest rates as the fallout from the Iran conflict, including a possible rise in ‌inflation, will depend on how long it lasts, ECB policymaker ⁠Yannis Stournaras said on Tuesday.

The U.S.-Israeli war on Iran, which is widening to other ‌countries in the region, is ‌seen as threatening to push up inflation and make a dent in Europe's already meagre economic growth by making energy more expensive and ​disrupting supply of other chemicals.

Stournaras, the Greek central bank governor, said a prolonged conflict would raise inflation but it was still too ⁠early to draw conclusions.

"If negotiations start tomorrow, there will be de-escalation," he said in a phone ​interview. "If it continues, there will be upward pressure on inflation. I do not exclude either. So, we should show ​flexibility."

Israeli Prime Minister Benjamin Netanyahu said the ‌war on Iran was "not going to take years". U.S. President Donald Trump initially projected the conflict to last four ⁠to five weeks, but has since sought to justify a broad, open-ended war.

For now, however, Stournaras said the central bank should sit tight and watch as ⁠the conflict unfolds.

"Its impact on inflation and output depends on the duration and the ​depth of the armed conflict," he said.

"As we have no visibility on either of them and taking into account the outlook of inflation, in my view we should ‌not rush to change any of the monetary policy parameters now but be alert and monitor the situation ‌very carefully."

He described the conflict as "another serious supply-side shock" hitting the euro ⁠zone economy which has already been ‌weighed down by an ​energy shock following Russia's invasion of Ukraine in 2022 and U.S. trade tariffs last year.

(Reporting by Francesco CanepaEditing by ‌Ros Russell)

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