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The European Central Bank is in no hurry to raise interest rates despite the surge in energy prices caused by the war in Iran, François Villeroy de Galhau, Bank of France governor and member of the ECB governing council, said at Semafor World Economy in Washington, DC.
“We shall have no hesitation to act if and when necessary, but there is no rush,” he said Wednesday. “There is no predetermined calendar. A focus on April would be premature.”
Before acting, the central bank must have a “critical mass of data” on the impact of the energy shock on two fronts, he said: underlying inflation and economic growth. “Our vigilance is first and foremost on the risk of persistence of inflation,” he said. “Headline inflation increased significantly in March, but underlying reinflation remained limited at 2.3%.”
Villeroy said in early April that the ECB’s next move was likely to be a rate increase but that a decision on timing depended on events in the Middle East.
The ECB last month left interest rates unchanged.
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Europe’s economy started 2026 on a strong footing following growth of 1.5% last year and inflation near the ECB’s 2% target, Villeroy said. He said the bank had modeled three scenarios for the impact of a negative supply shock on the economy, and none showed that a recession was likely.
Turning to fiscal policy, Villeroy said that while some countries, including Greece, Portugal, and Spain, had made progress in reducing budget deficits, “some of our countries, including mine, have homework to do.”
Although France has reduced its deficit from 5.8% of GDP to 5.1%, “this is still too much,” he added.
“The main challenge we have is about innovation and productivity,” he said, arguing that European policy makers must carry out the recommendations in the 2024 Draghi report, including uniting the bloc’s fragmented capital markets and investing more in AI, energy, and defense.
He said that the “new world order” was a “significant wake up call for… the European economy.”
“Believe, me it has been listened to.”