By Marta Vilar – WASHINGTON (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said on Thursday that the ECB was not in “precipitation mode,” and that hiking in April would be premature.
Villeroy, who heads the Banque de France, told CNBC that the energy shock arising from the Middle East conflict would bring higher inflation and lower growth, adding that it was “clearly” a negative supply shock.
The ECB could not be too focused on market expectations, he said, noting that they were “more linked to what I call the reference scenario.”
Despite hoping for a truce, peace, a reopening of the Strait of Hormuz and the reestablishment of production capacities in Gulf countries, “we all know that probably the reality will be a bit more difficult, a bit darker.”
Policymakers should be prepared for any possible scenario, he said.
Villeroy pointed to wages, inflation expectations and underlying inflation as key indicators he would monitor closely.
He cited the latest Eurozone inflation data, which had “increased significantly” to 2.6% in March for headline and which had “even slightly decreased” to 2.3% in the case of core inflation.
“So, we will act without hesitation if needed and when needed but we are not in a precipitation mode,” he said. “We need to reach a sufficient level of data about the effect of underlying inflation, second-round effects and also the negative effect on demand and growth.”
Villeroy said being agile meant being “nimble and humble and be ready to react as quickly as necessary.”
He said betting on an April hike was “premature at this stage,” and when asked about the possibility of such a move in June, he said that he was “not a great fan of this calendar-based” guidance.
Villeroy said he would not comment on market expectations given their volatility, adding that they were “extremely sensitive to all the news.”
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