Pablo Hernandez de Cos, general manager of the Bank for International Settlements (BIS), has warned that the ongoing conflict in the Middle East, particularly involving Iran, poses significant risks to global inflation and economic growth [1]. He stated that the war is expected to 'drive inflation upwards and growth downwards,' and emphasized that central banks worldwide must be 'ready to act' against these inflationary effects [1].
Hernandez de Cos cautioned that excessive fiscal policy responses—such as aggressive government spending to offset the economic impact—could further fuel inflationary pressures rather than stabilize markets [1]. He stressed that 'the appropriate policy response must be carefully calibrated,' and central banks should maintain vigilance regarding price stability, being prepared to adjust interest rates if inflation accelerates beyond target levels [1].
Financial markets have responded to the conflict with heightened volatility, especially in oil prices and related commodities [1]. Analysts note that the risk premium on crude oil futures has increased, reflecting concerns over potential supply disruptions [1]. Technical analysis indicates that Brent crude has traded above $90 per barrel and WTI is approaching $85, with key support levels at $80 for Brent and $75 for WTI [1]. Sustained price increases may prompt central banks to tighten monetary policy, with traders expecting potential rate hikes if inflation persists [1].
The BIS chief also highlighted the risk of fiscal policy becoming 'a source of additional inflationary pressure,' and called for close coordination between central banks and fiscal authorities to ensure effective policy actions [1]. He urged policymakers to avoid knee-jerk reactions and focus on maintaining financial stability, stating, 'We are monitoring market sentiment and technical indicators closely, and we stand ready to act if necessary to preserve price stability' [1].
CONCLUSION
The BIS chief's remarks underscore the heightened risks to inflation and growth stemming from the Iran war and potential fiscal stimulus responses. Financial markets, particularly oil, are already exhibiting increased volatility, and central banks may need to tighten policy if inflation persists. Policymakers are urged to act prudently and coordinate closely to maintain stability.