By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said on Thursday that financial markets had, to some extent, overread recent comments about the timing of possible interest rate increases, stressing that such discussions remain “premature.”
In an interview with French daily Les Échos, Villeroy, who heads the Banque de France, said that a prolonged conflict in the Middle East would push oil prices higher and amplify the negative impact on both the French and broader European economies.
The surge in inflation was “the most significant change in the short term” stemming from the Iran war, he said, adding that under the baseline scenario, French headline inflation was projected to reach 1.7% in 2026—0.4 percentage points above December expectations—while core inflation was expected to come in lower than previously forecast.
“However, in all cases and for all years from 2026 to 2028, inflation in France is expected to remain significantly below the euro area average: this is an advantage for purchasing power and competitiveness,” he said.
Villeroy highlighted key differences from the 2022 shock, noting that back then there were earlier inflationary pressures and supply bottlenecks.
“That being said, we must remain extremely vigilant regarding the second-round effects,” he said.
On the prospect of a rate hike at the next meeting, he said that there had been “some overinterpretation of statements regarding a supposed timetable for rate hikes,” adding that this debate was in his view “premature” and that the ECB had not committed to a predefined rate path.
The ECB was “well-positioned” to act in response to the shock and had the capacity to react “if and when necessary,” he said, noting that it was now not “simply in ‘a good position’, which is more static.”
While acknowledging that central banks do not control oil prices, Villeroy stressed their responsibility to keep inflation expectations anchored and prevent spillovers into wages.
“Businesses, like households, can count on our unwavering commitment to stabilizing inflation at 2% over the medium term,” he said. “And if we are led to act to achieve this, it will be beneficial to growth.”
If inflation were to become entrenched, it would disrupt both households and businesses and weigh on domestic demand, he said.
Villeroy noted that there was “no need to choose between inflation and growth,” pointing to the “successful” disinflationary process that started in 2023.
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