Francois Villeroy de Galhau, an ECB policymaker and the governor of the Bank of France, said the European Central Bank's next change to interest rates will very likely be upward, but he emphasized that it is too early to predict when any hiking cycle would begin.
Speaking at Paris Sciences Po university, Villeroy drew attention to a near-term inflation dynamic driven by energy costs. He said the recent jump in energy prices has quickly fed into headline inflation figures for both the euro zone and France, even as he characterized underlying inflation as "firmly under control."
Villeroy also cautioned that the continued duration of the conflict in the Middle East is a downside element for the economic outlook. He said that, given current developments, the economic picture looks closer to the ECB's intermediate adverse scenario than to the baseline scenario that underpinned its forecasts released last month.
Against this backdrop, Villeroy said the next adjustment in the ECB's policy rates is "highly likely to be upwards." He added that determining a precise timetable for rate increases is premature, but stressed the central bank's readiness to act when necessary and in whatever manner required to fulfil its mandate.
Context and implications
Villeroy's remarks underline a tension for policymakers: headline inflation pressures from energy costs have accelerated, yet measures of underlying inflation remain contained. That combination complicates decisions about the timing and pace of monetary tightening, particularly while geopolitical uncertainty persists.
He delivered these comments in an academic setting, reinforcing the message that the ECB is monitoring incoming data and risks closely while retaining flexibility in its policy response.