The European Central Bank must stay 'very agile and vigilant' as the Iran war pushes stagflation risks closer, Governing Council member Boris Vujcic warned. The Croatian central-bank chief, who becomes ECB vice president in June, said officials may need to raise interest rates if energy disruptions persist and inflation accelerates.

Vujcic said the ECB is already departing from baseline scenarios toward worst-case outcomes, with new projections showing 2.6% inflation this year under normal conditions and 6.3% in extreme scenarios. Policymakers including Bundesbank President Joachim Nagel have signaled potential rate hikes at next month's meeting as energy costs feed into prices.

While the ECB's focus remains on price stability, Vujcic acknowledged two possible approaches if tightening becomes necessary: smaller early moves or larger later hikes. Markets already price in as many as three quarter-point increases this year from the current 2% deposit rate, though Vujcic cautioned it's 'too early to say' whether action will be needed.