Francois Villeroy de Galhau, Governor of the Bank of France, stated the euro-area economy is now closer to the European Central Bank's adverse scenario due to the prolonged Iran war, making a near-term interest rate hike very likely.

Villeroy made these remarks Thursday in Paris, emphasizing the conflict's negative impact on economic growth and inflation. He noted the economy has shifted from the ECB's baseline scenario to the intermediate adverse scenario, increasing pressure on the central bank to raise rates despite potential risks to financial stability.

This development significantly raises the probability of the ECB hiking interest rates in the coming months, as the adverse scenario incorporates higher inflation and slower growth. Investors should monitor policy signals closely, as the ECB's response could reshape borrowing costs across the euro zone.