By David Barwick – FRANKFURT (Econostream) – A month ago, we suggested that European Central Bank Governing Council member François Villeroy de Galhau’s relentless inflation-risk rhetoric could be teeing up a call for a rate cut. Alas, his latest intervention confirms it was no joke.
To be sure, the Iran conflict has foreclosed that possibility. Still, in his Boursorama interview on Friday, the old instinct remained visible in its last available form: a refusal to rule cuts out altogether.
What was once merely silly has now become absurd. We recall that on January 12, Villeroy dismissed the idea of rate hikes this year as a “fanciful theory.” On February 18, he was publicly arguing that downside inflation risks were greater. On March 5, he still said he saw no reason for the ECB to raise rates.
And now, well into the Iran shock, he concedes that a hike is more likely than a cut. Still, he insists the latter cannot be totally excluded; after all, that preserves the last faint trace of the line he had plainly been following before the war intervened.
He will likely be proven wrong again. That will not stop the familiar pattern of talking too categorically and too often, then scrambling to catch up with the facts. Only his departure from the Banque de France on June 1 will do that.
His Boursorama warning that one should not base medium-term policy on day-to-day moves in oil prices is a straw man. No serious observer is proposing that. The ECB itself published baseline and alternative scenarios precisely to avoid making policy off a single market print and to think instead in terms of persistence and transmission. Villeroy’s insinuation to the contrary added nothing of value to the current discussion.
Even his own analytical signposts pointed the other way. Two branches of the ECB’s decision framework would be especially important now, he said: underlying inflation and inflation expectations—precisely the channels one highlights when explaining why an energy shock may require a hawkish response, not why cuts remain a genuine near-term possibility.
That underscores the difficulty of taking him seriously. This is not simply a matter of changing one’s mind after a genuine shock. Of course policymakers must do that. The problem is the repeated tendency to overstate, recalibrate, and then blithely carry on.
January’s “fanciful theory” already looks ill-considered. February’s downside-risk emphasis looks no better. March’s refusal to rule out cuts looks like the desperate reflex of a man who still wants to lean dovish but no longer has the facts to do so openly.
Villeroy is due to leave on June 1, making the April 30 monetary policy meeting his last. If the Governing Council does end up hiking then, it would be a poetic send-off: the policymaker who called hikes this year “fanciful” would exit on a rate increase he spent many months trying to wish away.
None of this means April is predetermined. The larger point is that Villeroy’s public guidance is too erratic and too reflexively dovish to deserve much weight.
He can still utter the ritual formula that cuts cannot be totally excluded. He can still warn against imaginary overreactions to daily oil moves. But after January, February and now this interview, the performance has become impossible to take seriously.
