If the European Central Bank adjusts interest rates in the next six months, the move would likely be a cut, ECB policymaker Francois Villeroy de Galhau said on Thursday.
Speaking at the European University Institute in Italy, Villeroy said that barring a major external shock - including possible new military developments in the Middle East - any policy change by the ECB would likely aim to further accommodate growth.
The ECB this month signalled a pause in policy easing, even as projections show inflation dipping below its 2% target, reviving concerns about a return to ultra-low inflation.
Oil prices have surged 7% after Israeli strikes on Iran triggered missile retaliation. Villeroy, who is also governor of the Bank of France, said the ECB would watch closely for energy price spillovers into broader inflation trends.
He noted that the euro’s recent strength helps cushion the impact of rising oil prices: a 10% euro appreciation offsets the inflationary effect of a 10 euro oil price rise.
Market pricing now suggests a greater risk of euro zone inflation undershooting the ECB’s 2% target. ECB forecasts see inflation falling below 2% in Q2 this year and returning to target by 2027, aided by a new emissions trading system.
"In such a context, we need to remain alert and agile in all our next meetings," Villeroy added.
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Iran’s Islamic Revolutionary Guard Corps (IRGC) unveiled a new underground ballistic missile base on Wednesday (4 February), just over a day before the start of mediated nuclear negotiations with the United States, slated for Friday in Oman.
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