ECB’s Villeroy warrants caution on monetary, budget policy

Dhwani Mehta FXStreet

European Central Bank (ECB) Governing Council member Francois Villeroy de Galhau made some comments on the impact of the oil shock and the Russia-Ukraine war on the old continent’s monetary and budgetary policies.

Additional comments

The oil shock “is very strong in its intensity, we don’t know its duration yet,” the Bank of France chief said on France Inter radio Saturday. Compared with the Covid-19 pandemic, the crisis stemming from the war “is much less violent for economic growth, but it’s translating into more inflation because of rising energy costs.”

The economic impact of the crisis, which may shave as much as 2 percentage points in cumulated economic growth through 2024 for the eurozone, may require “targeted” government measures, Villeroy said. It doesn’t currently justify “whatever-it-costs” policies introduced two years ago to fight the deep recessions caused by the pandemic,

“While we’re going to progressively take our foot off the accelerator, it’s precisely to avoid having to press on the brake after or tomorrow too brutally.”

“There’s no automatism” between the end of the bond-buying and higher rates.”

Market reaction

EUR/USD pared back to now trade flat at 1.0908, having faced strong offers near 1.0940.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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