François Villeroy de Galhau, a member of the European Central Bank's Governing Council, stated in an interview that the ECB is prepared to take action to curb inflation expectations.
François Villeroy de Galhau, a member of the European Central Bank's Governing Council, stated in an interview that the ECB is prepared to take action to curb inflation expectations, but it is still too early to predict the specific date of a potential interest rate hike.
The governor of the Bank of France noted that the conflict in Iran could trigger a negative supply shock, leading to slower economic growth and faster increases in consumer prices. He added that the latest developments regarding this conflict “have not brought favorable signals.”
“The ECB cannot control oil prices, but we have both the ability and the responsibility to anchor inflation expectations for households and businesses at the medium-term target of 2%,” he said in an interview published on Monday. “If necessary, we are prepared to act in this direction.”
Some of Villeroy’s colleagues had previously hinted that the ECB might take action as early as April. Markets also widely anticipate an upcoming tightening policy, with current pricing already reflecting expectations of up to three interest rate hikes this year.
Villeroy reiterated that the ECB’s interest rate path is not pre-set but will be data-driven. The April meeting will be his last regular policy session before stepping down as governor of the Bank of France.
“Discussions about preset dates seem highly premature,” he remarked. “There has been some over-interpretation in financial markets in recent days.”
On other fronts, Villeroy stated that the risk of instability in Europe’s financial sector is lower now than in 2007 following the strengthening of banking supervision.
“Thanks to the requirements of Basel III and the establishment of a unified supervisory system, there is no risk of a banking crisis in Europe,” he said.
However, he warned that the risks in the United States are greater and called for close monitoring of stock indices, private credit, and cryptocurrency dynamics.
Villeroy stated, “Compared to the United States, systemic risks on the European continent appear to be lower. Moreover, we observe a trend toward deregulation across the Atlantic, which, under the current market conditions, would be a dangerous direction.”
Editor/Doris