Villeroy says ECB ready to act but timing of any rate hike is premature

ECB stance

The European Central Bank is determined to prevent any energy-driven inflation from spreading more broadly, but it is too early to discuss dates for possible interest rate hikes, French central bank chief Francois Villeroy de Galhau told Italy's *La Stampa* newspaper.

Villeroy said the ECB stood ready to respond if needed, while cautioning against debating any pre-set timetable for raising borrowing costs. "We are ready to act in this direction if needed," *La Stampa* quoted him as saying. "The debate on pre-established dates appears very premature."

Inflation risks

The conflict involving the United States, Israel and Iran has pushed energy prices sharply higher, prompting ECB policymakers to debate whether, and under what circumstances, they may need to raise rates to stop those increases from feeding into the prices of other goods and services.

Villeroy acknowledged that the war had worsened the inflation outlook and said the ECB could not prevent a near-term shock. He said the central bank's role was to ensure that short-term price increases do not turn into a broader rise in inflation.

Policy debate

ECB policymakers have been divided on the need for a near-term rate increase. Some have said an April hike is an option, while others have argued the ECB should not rush because there is still little evidence to justify such a move.

Villeroy, who is leaving office in June, also said the ECB's adverse and severe inflation scenarios may overestimate the impact because they do not factor in any reaction by the central bank.

Financial markets now expect three ECB rate hikes this year, with the first move fully priced in by June.