European Central Bank Governing Council member Francois Villeroy de Galhau stated that it is too early to discuss interest rate increases, despite some of his colleagues suggesting that hikes may be necessary to address accelerating inflation.
As the conflict in Iran drives up energy costs, the Bank of France Governor urged officials to remain "highly vigilant" regarding second-round effects. However, he reiterated to Les Echos that the ECB has not committed to any specific direction for borrowing costs.
"Some statements regarding a so-called rate hike timetable have been overinterpreted," Villeroy said. "This discussion seems premature to me. We have made it clear that we will not pre-commit to any particular interest rate path. We believe we are 'in a favorable position' to handle this shock and have the capacity to act if necessary."
Earlier that day, ECB President Christine Lagarde indicated that the central bank would not take action until the full extent of economic damage from the Middle East conflict is better understood. Nevertheless, some policymakers have hinted that moves could come as early as April. Markets anticipate that policy tightening is imminent, forecasting two to three rate hikes within the year.
"We are clearly not responsible for oil prices," Villeroy noted. "However, our duty is to keep inflation expectations stable to prevent a wage-price spiral."
He reiterated this stance later in the day during an interview with France 2.
"We will take the necessary measures to bring inflation back to no more than 2% by 2027 and 2028," he stated.
The April policy meeting will be Villeroy's last attendance, as he has decided to leave the Bank of France in June.
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