European Central Bank official Villeroy says it is too early to discuss when to raise interest rates

European Central Bank Governing Council member Francois Villeroy de Galhau said that it is too early to discuss interest rate hikes, despite some of his colleagues hinting that a rate increase may be needed to combat rising inflation.

As the Iran conflict pushes up energy costs, the French central bank governor urged officials to remain “highly alert” to second-round effects, but reiterated to Le Figaro that the ECB has not locked in any direction on the path of borrowing costs.

“Some statements about the so-called interest rate hike timetable are being overinterpreted,” Villeroy said. “In my view, this discussion is premature. We have already indicated that we will not pre-commit to any specific interest rate path. We believe we are ‘well positioned’ to respond to this shock and have the capacity to act if necessary.”

Earlier that day, ECB President Christine Lagarde said the ECB would not take action until the extent of the damage caused by the Middle East conflict to the economy is fully understood. However, some policymakers have hinted that action could come as early as April. Markets expect policy tightening to arrive soon, with two to three rate hikes anticipated this year.

“We are obviously not responsible for oil prices,” Villeroy said. “However, our duty is to keep inflation expectations stable to prevent a wage-price spiral.”

He reiterated this view later that evening in an interview with France 2.

“We will take necessary measures to bring inflation back to no more than 2% in 2027 and 2028,” he stated.

The April policy meeting will be Villeroy’s last appearance, as he has decided to leave the French central bank in June.