Ignoring the European Central Bank's "hawkish" stance, outgoing board member Villeroy's "dovish" position remains unchanged: there is not yet enough reason to raise interest rates.

Outgoing European Central Bank board member Francois Villeroy de Galhau stated that the ECB has not seen a significant impact of rising oil prices on inflation, therefore, they will not raise interest rates. He said in an interview on Tuesday, "If we see this second-round effect, we will take action and raise interest rates to prevent inflation from spreading and continuing. Currently, we have not seen enough signs of this diffusion." Villeroy warned directly and clearly: "The rise in energy prices must not spread to all other areas - the services, manufacturing, and food sectors, which make up 50% of our consumption." He further emphasized that while action will be taken to raise interest rates if the second-round effect is seen, "at present, we have not seen enough evidence that this transmission is taking place." The primary prerequisite for any tightening decision is that inflation has spread beyond the initial driving factors, especially through potential price pressures, wages, and inflation expectations of households and businesses. He added in a transitional tone that before implementing any possible tightening policy, sufficient quality data must be collected. Villeroy announced that he will retire at the end of May and will not participate in the next policy meeting. His term was originally scheduled to end next year. This week, Villeroy wrote a letter to French President Macron stating that the ECB should combine caution with a readiness to take action without hesitation. In February of this year, he announced that he would end his second term as Governor of the Bank of France early and step down in early June to focus on charity work helping disadvantaged youth - serving as the Chairman of Fondation Apprentis d'Auteuil. The role of the Governor of the Bank of France is directly linked to the position of the member of the ECB's board, so he will leave the ECB at the end of May. Hawks intensify their voices and expectations of rate hikes are rising rapidly Villeroy's conservative stance contrasts sharply with several hawkish colleagues. Bundesbank President Joachim Nagel stated on Monday that if there is no significant improvement in the inflation outlook before the June meeting, the ECB will need to raise interest rates in June. He specifically noted that the decision not to tighten monetary policy last week to assess the impact of the Iran conflict more clearly was a "cautious" move, but this "vigilant wait-and-see attitude should not be misunderstood as indecision." Nagel also revealed a key decision point: the latest economic forecasts by the ECB to be released next month will be the core basis for determining whether action is necessary. Estonian Central Bank President Madis Mller has also joined the hawkish camp, publicly stating that the possibility of rate hikes is increasing and expects inflation to accelerate further in the coming months. At last week's meeting, although the policy committee discussed options for raising rates, they ultimately decided to stand pat due to insufficient information. According to insiders who spoke to the media, if energy prices and the situation in conflict zones do not improve, the ECB will likely raise rates in June; if the conflict continues to escalate, there is almost no room to delay the rate hikes. It is also reported that several board members believe that at least two rate hikes are needed unless the military conflict ends and Brent crude oil prices rapidly fall. The changes in pricing in the interest rate market are even more astonishing. The market is now fully pricing in an interest rate hike at the June meeting of the ECB, expecting three rate hikes to be implemented throughout the year, with the first rate hike to be fully implemented before July. Traders are betting on the probability of a rate hike in June to be between 75% and 77%, with a total increase of approximately 70 basis points expected throughout the year. Data from Deutsche Bank shows that consumer inflation expectations surveyed by the ECB have deteriorated - one-year inflation expectations have jumped significantly from 2.5% to 4.0%, the highest level since 2023, indicating a "meaningful deterioration" in consumer inflation expectations. Lagarde has previously stated that special caution is needed to guard against second-round effects of energy shocks, where price increases drive wage growth, leading to a spiral of wage and price increases and causing inflation expectations to become unanchored. Carsten Brzeski, Global Head of Macroeconomics at ING, commented that the meeting "shows a hawkish turn for the ECB once again," whether it is a symbolic rate hike or a move that could be seen as a policy mistake, the possibility of a rate hike in June has become greater.