By David Barwick – FRANKFURT (Econostream) – It’s easy to picture some of those listening to European Central Bank Governing Council member François Villeroy de Galhau’s speech last Thursday doing a double-take on hearing him say that the next change in ECB interest rates was probably destined to be a hike.

After all, this is the policymaker who in January dismissed hikes this year as a “fanciful theory,” barring an unlikely shock. The one who, on March 5 and thus a week into such a shock, still saw no reason for hikes. Who, on March 20, didn’t want to “fully exclude” policy easing. Who, on March 26, accused markets of “overinterpretation.” And who, as late as March 29, was still declaring any debate about the date of a possible rate move “very premature.”

Four days after that, true to what we have previously called his “habit of staking out positions with confidence and then recalibrating seamlessly without acknowledging the recalibration,” he abruptly says that “the next change in key interest rates is highly likely to be upwards” – prefaced, no less, by the word “obviously.”

To infer an increased readiness on his part to tighten policy would be a mistake. A more careful study of the speech reveals repeated application of familiar brakes, starting with his insistence, again, that “we are not witnessing a repeat of 2022.”

He reiterated that when expectations are anchored, there is “no need to overreact by aggressively raising interest rates.” He argued that monetary policy can respond “in an unhurried manner,” and stressed that it was “far too early to predict a timetable” for rate increases. He warned against “overreacting to a shock that is, in any case, already slowing down the economy.”

So, no, Villeroy has not suddenly become an advocate of an April hike. Such advocacy would imply notably more effort to normalize a near-term move, more insistence that delay itself carried growing danger. Instead, what he offered was uncharacteristic directional honesty paired with characteristic timing restraint.

Coming from him, even that much forthrightness is noteworthy. The best explanation is that Villeroy now feels freer to admit what was already inescapable: that the next move, whenever it comes, is more likely to be up than down.

Why should he feel freer? Because near-term ECB action no longer looks especially likely anyway, in line with our contention in this space that a hold on April 30 increasingly seems the default option. For us, the contrast between his new frankness on direction and his continuing caution on timing fits this inference well.

The burst of candor takes on added meaning in light of his plan to leave office in June. If he believes an April hike is unlikely absent a marked deterioration over the coming weeks, then he can afford to be realistic without materially increasing the risk that his final meeting will yield the sort of move he would normally strain to avoid encouraging. A hike that comes later? Someone else’s decision.

From that perspective, the only remarkable thing about his April 2 speech is that he suddenly sounded unusually honest. The old Villeroy tendency has been to leave as much room as possible for easier policy and to minimize the likelihood of anything else. For once, the usual dovish signaling did not dominate. He admitted the probable direction of travel while still hedging that admission with every indication that the ECB need not rush there.

That is the larger context in which his comments belong. Those who hear “highly likely to be upwards” and infer that Villeroy may now be on board for an April hike are overinterpreting him. The more persuasive interpretation is almost the opposite: he sounds this candid now because he feels safe in doing so. The likely direction can be admitted precisely because the timing remains open, the brakes are still on, and a hike looks like something for later, not April 30.