Olaf Sleijpen, governor of the Dutch central bank and a policymaker at the European Central Bank (ECB), said the euro area’s monetary policy backdrop remains broadly stable even as war has erupted in the Middle East. Speaking in an interview, Sleijpen stressed that the situation is developing rapidly and that it is too early to form a definitive view on the long-term economic fallout.
"Obviously, things have changed," Sleijpen said, while adding that the conflict has unfolded over only a few days and that drawing firm conclusions now would be premature. He underscored that, although he would not use terms like nirvana or Goldilocks to describe the current environment any longer, he has not substantially altered his assessment that monetary conditions are still "a good place."
Sleijpen noted that market moves to date have broadly followed theoretical expectations. He reiterated that the ECB remains "truly data-dependent" and that policymakers will watch closely how the conflict evolves and how it transmits to inflation, growth and financial conditions.
When asked whether the ECB should adjust policy in the near term in response to the conflict, Sleijpen signalled little immediate urgency to change course, responding in the affirmative that he still considered policy to be in a good place and therefore did not see a need for an immediate shift.
One obvious transmission channel from the conflict would be higher oil prices. Sleijpen warned that an oil price shock could complicate the economic outlook by pushing inflation upward while simultaneously exerting a drag on economic activity. He said that the balance between those opposing forces will depend heavily on the way events unfold and whether disruptions extend into supply chains.
"If you would put what we have been seeing the last 4 or 5 days in a model, then probably the impact on inflation is higher than the impact on growth," he said, while cautioning that models cannot fully capture the complexity of real-world developments.
Sleijpen also cautioned against viewing current developments through the same lens as the inflation surge seen in 2021 and 2022. He pointed out that the character of the shock now is different and that monetary policy is currently closer to neutral than it was during that earlier period. "The nature of the shock is different. Monetary policy is in a neutral setting now, which wasn’t the case back then," he said.
He drew a lesson from the previous episode of high inflation: supply-side shocks can be particularly difficult to manage from a monetary policy standpoint. Such shocks may alter inflation dynamics to the point where the central bank must respond. "One of the lessons of that period is that we need to be aware of the risks around supply side shocks. They are difficult to manage from a monetary policy point of view and may have an impact on inflationary dynamics at a certain point, where the central bank has to react. This is an important lesson," Sleijpen said.
Despite ongoing uncertainty around trade policy and tariffs, he said the euro zone economy has proven more resilient than expected over the past year. At the same time, he warned that uncertainty itself can weigh heavily on firms' willingness to invest. Quoting a Dutch chief executive, he relayed that "uncertainty is something I dislike even more than the tariffs," explaining that it complicates long-term planning and investment decisions.
On the question of financial cooperation with the United States, Sleijpen said he remained confident that the euro area could access dollar liquidity through established arrangements with the Federal Reserve. He expressed trust in the relationship with the Fed's current leadership with respect to that particular mechanism and noted that the two institutions hold regular discussions.
Finally, Sleijpen confirmed that the Dutch central bank has no plans to alter its approach to gold reserves held at the Federal Reserve Bank of New York.
Summary
Olaf Sleijpen says the euro area’s monetary framework is still in a broadly stable position despite the recent outbreak of war in the Middle East. He emphasised the ECB’s data-dependent stance, warned that oil price shocks and supply-chain disruptions could push inflation higher while slowing growth, and noted the economy’s resilience over the past year amid trade-policy uncertainty. Sleijpen also expressed confidence in dollar liquidity arrangements with the Federal Reserve and confirmed no change in the Dutch central bank’s handling of gold reserves in New York.
Key points
- Monetary stance: Sleijpen describes the current monetary policy setting as "a good place," while acknowledging developments in the Middle East have altered the near-term landscape.
- Inflation-growth trade-off: An oil price shock linked to the conflict could lift inflation even as it weighs on growth - the net effect depends on the evolution of the situation and any spread into supply chains.
- Liquidity and reserves: Sleijpen expressed confidence in euro-area access to dollar liquidity through existing arrangements with the Federal Reserve and said the Dutch central bank will not change its strategy on gold reserves held at the Federal Reserve Bank of New York.
Risks and uncertainties
- Energy shock risk - sectors exposed to oil price volatility such as transportation, logistics and energy-intensive manufacturing could face cost pressures if oil prices rise, contributing to higher inflation.
- Supply-chain disruption - if the conflict spreads to key trade routes or supply links, manufacturing and trade-exposed sectors may suffer reduced output, which would further complicate the inflation-growth balance.
- Business hesitancy due to uncertainty - firms may delay investment and hiring decisions amid heightened uncertainty, weighing on demand and capital expenditure across industrial and services sectors.