European Central Bank Vice‑President Luis de Guindos warned policymakers to exercise caution before tightening monetary policy, telling the Financial Times that the full repercussions of the Iran war on euro‑area growth have yet to materialise. His comments arrive amid a fragile recovery, where any premature rate hike could strain corporate financing and consumer credit.

Market participants have been gauging the ECB’s next move since inflation showed signs of easing, but the geopolitical shock adds a layer of uncertainty. Analysts note that the central bank’s mandate to contain price pressures must now be balanced against the risk that higher borrowing costs could dampen investment in Germany, France and the Netherlands, where output remains modest.

Investors are likely to price in a more measured approach, keeping euro‑dollar spreads relatively stable for the near term. As policymakers digest Guindos’s prudence signal, banks may hold off on aggressive balance‑sheet tightening, preserving liquidity for firms still navigating supply‑chain disruptions linked to the conflict.