ECB’s Villeroy: The ECB could still cut rates despite oil market volatility

• The conflict in the Middle East has not altered the underlying inflation outlook for now.
• Inflation expectations remain moderate.
• Significant appreciation of the Euro partly offset the rise in oil prices.
• Now we are back to normal but this does not mean the ECB would keep rates at this level.
• The conflict in the Middle East is a new source of uncertainty.
• The oil price per se is not a sufficient guide for out reaction function.
• If we were to see spillovers to underlying inflation and de-anchoring of inflation expectations, then we could possibly adapt monetary policy.
• We will stick to data driven and meeting by meeting decisions.
• We will see how things evolve.

This comments to the Financial Times here are from yesterday before the big selloff in oil prices. The ECB is now in a wait-and-see mode until September at very least. The most probable month for the next rate cut according to the market pricing is December.

This article was written by Giuseppe Dellamotta at www.forexlive.com.