ECB governing board President Francois Villeroy de Galhau said on Tuesday that euro zone inflation should still reach the ECB's target of around 2 percent by 2025, even though the Israeli-Palestinian conflict could raise commodity prices. Villeroy said the ECB was particularly cautious about the direction of oil prices, but added that they represent only a small part of overall inflation, which is still "clearly" falling; Now is not the right time to raise interest rates further.
International oil prices retreated on Tuesday after rising more than 4 per cent in the previous session, with traders cautious and keeping an eye on possible supply disruptions caused by the military conflict between Israel and the Palestinian Islamist group Hamas. Some fear this latest war could have the same effect on oil prices as the Yom Kippur war in 1973. In 1973, a coalition of Arab states led by Egypt and Syria launched an attack on Israel that plunged the West into a severe energy crisis.
Villeroy said, "I don't think we're in a similar situation today (to the Yom Kippur War), but we certainly have to be on high alert." It adds to economic uncertainty."
He also said the benchmark interest rate, which reached a record 4 percent last month after the ECB raised rates 10 times in a row, was at a "good level," adding that now was not the right time to raise rates further.