The European Central Bank (ECB) is committed to maintaining its inflation target amidst rising energy prices, according to Bank of France Governor Francois Villeroy de Galhau. In an interview with CNBC, he emphasized that the ECB will take necessary actions to bring inflation back to its 2% target in the medium term, particularly in light of the recent spike in oil prices due to geopolitical tensions in the Middle East. Eurozone inflation rose to 3% in April, heightening concerns about energy-induced inflationary pressures.

This situation has led to increased volatility in global government bonds, with Germany’s 10-year bund yield rising by approximately 32 basis points as investors anticipate tighter monetary policy. The ECB’s decision to hold interest rates steady at 2% last month reflects a cautious approach, as officials await more data on potential second-round inflation effects, including wage growth and inflation expectations.

Market professionals should note that a rate hike is highly anticipated at the ECB’s June meeting, with expectations of at least a 50 basis point increase by year-end, signaling a shift in monetary policy to counter inflationary pressures.

Source: cnbc.com