The European Central Bank does not see sufficient evidence that rising oil prices are affecting inflation enough to justify raising interest rates, according to outgoing Governing Council member Francois Villeroy de Galhau.
Speaking on France 5 television on Tuesday, Villeroy stated that the ECB would take action and increase rates if second-round effects emerge that could make inflation broad and sustainable. He noted that such signs of propagation are not currently present.
Last Thursday, the ECB maintained its current borrowing costs while indicating that a rate increase would be considered at its June 10-11 meeting. Following that decision, Bundesbank President Joachim Nagel stated that a rate hike would be necessary without significant improvement in inflation and economic growth outlooks. Slovakia’s Peter Kazimir described such a move as “all but inevitable.”
Villeroy will not attend the June policy meeting as he announced his retirement at the end of May, ahead of his term’s scheduled end next year.
In a letter to French President Emmanuel Macron this week, Villeroy said the ECB should balance caution with preparedness to act without hesitation.
Villeroy emphasized on Tuesday that energy price increases must not spread to other sectors, including services, which represent 50% of consumption, as well as manufactured goods and food.
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