Middle East tensions should not delay ECB’s June rate cut, Villeroy says

PARIS (Reuters) – Tension in the Middle East is unlikely to drive up energy prices and should not affect the European Central Bank’s plans to start cutting interest rates in June, French central bank chief Francois Villeroy de Galhau said on Sunday.

“Barring surprises, there is no need to wait much longer”, Villeroy told business daily Les Echos in an interview, reiterating the stated position of senior ECB policymakers that the euro zone’s central bank will start cutting rates in June.

“It should be followed by further cuts, at a pragmatic pace,” Villeroy said, adding that tensions in the Middle East for now do not threaten the target of bringing inflation down to 2% by 2025.

“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 analyse monetary policy for whether this shock is temporary and limited, or whether it is transmitted – beyond commodities – to underlying inflation”, he said.

The ECB made it clear on Thursday an interest rate cut was expected in June, but policymakers differed on subsequent moves and on how low interest rates need to fall to stimulate the economy.

Policymakers said energy market volatility and geopolitical tensions were a risk to inflation, but that the impact has not been enough to stop inflation falling.

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