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Francois Villeroy de Galhau, the head of the French central bank and a key figure within the European Central Bank (ECB), stated on Sunday that tensions in the Middle East are unlikely to drive up energy prices significantly and should not deter the ECB from its plans to initiate interest rate cuts in June.
Speaking to the business daily Les Echos, Villeroy emphasized that unless unforeseen circumstances arise, there is no reason to delay the rate cut any further, echoing the sentiments expressed by other senior ECB policymakers regarding the imminent reduction of interest rates in the eurozone.
Villeroy stressed that the rate cut in June should be just the beginning of a series of cuts, implemented at a practical pace. He noted that the ongoing tensions in the Middle East do not presently pose a threat to the ECB’s target of achieving a 2% inflation rate by 2025.
Regarding the impact of the conflict on oil prices, Villeroy remarked, “At the moment, the conflict is not leading to a marked rise in oil prices. If this were ever the case, we would have to analyze monetary policy to determine whether this shock is temporary and limited, or if it extends beyond commodities and affects underlying inflation.”
The ECB had previously indicated that an interest rate cut was anticipated in June, although policymakers held differing views on subsequent actions and the extent to which interest rates should be lowered to stimulate economic growth.
While policymakers acknowledged that energy market volatility and geopolitical tensions posed risks to inflation, they observed that these factors had not been sufficient to prevent a decline in inflation.
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