FRANKFURT, March 30 (Reuters) – The European Central Bank is determined to prevent any energy-driven inflation from broadening out, but it is too early to discuss dates for possible interest rate hikes, French central bank chief Francois Villeroy de Galhau told Italy’s La Stampa newspaper.
The U.S.-Israeli war on Iran has pushed energy prices sharply higher and ECB policymakers are now debating whether and under what circumstances they would need to lift interest rates to prevent this increase from seeping into the price of other goods and services.
“We are ready to act in this direction if needed,” La Stampa quoted Villeroy as saying on Monday. “The debate on pre-established dates appears very premature.”
Some policymakers have said a rate hike in April is an option while others have argued that the ECB should not rush to raise borrowing costs because there is little evidence at this time to support such a move.
Still, Villeroy acknowledged that the war has been unfavourable for the inflation outlook and that the ECB is powerless to prevent a near-term shock. He said the central bank’s job is to ensure that short-term price increases are not transmitted into a broader rise in inflation.
Villeroy, who is leaving office in June, also noted that the ECB’s adverse and severe scenarios for inflation may be overestimating the impact, since they do not include any reaction by the central bank.
Financial markets now expect three rate hikes from the ECB this year, with the first move fully priced in by June.
(Reporting by Balazs Koranyi; Editing by Paul Simao)
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