Governing Council member Alexander Demarco told Bloomberg Markets the European Central Bank would be better off waiting before raising borrowing costs. He cited lingering uncertainty surrounding the Iran war as a key reason to avoid a premature hike. Such restraint aligns with the bank’s mandate to keep inflation near its 2% target.

Analysts have warned that a sudden rate move amid geopolitical tension could trigger a sell‑off in euro‑zone equities and lift yields on sovereign debt. By holding fire, the ECB preserves policy flexibility, allowing it to gauge inflation trends while keeping financing conditions stable for businesses still coping with supply‑chain disruptions, and gives firms time to adjust pricing strategies.

Investors are likely to price in a modest pause, tightening spreads on German bunds and sharpening the euro against safe‑haven currencies. Demarco’s caution signals that the ECB prefers data‑driven moves over political pressure, a stance that could sustain confidence in the bloc’s monetary strategy as the conflict drags on in global markets.

Market participants have already trimmed euro‑zone rate‑cut bets, and bond yields slipped modestly after Demarco’s comments. The cautious tone may encourage corporates to lock in financing now rather than wait for a possible later rate action, preserving cash flow amid the geopolitical backdrop.