The European Central Bank should complete its interest-rate increases “by the summer” and then be prepared to hold for a potentially sustained period to tame inflation that remains too high, Governing Council member Francois Villeroy de Galhau said.
(Bloomberg) — The European Central Bank should complete its interest-rate increases “by the summer” and then be prepared to hold for a potentially sustained period to tame inflation that remains too high, Governing Council member Francois Villeroy de Galhau said.
According to the Bank of France chief, it’s too early to anticipate where rates will peak because hikes in the coming months will depend on incoming data.
Having just brought the deposit rate to 2% — a level considered to be around the so-called neutral level that neither stimulates nor restricts the economy — he said the ECB should implement a second phase of tightening toward “monetary stabilization.”
“We’ll then be ready to remain at this terminal rate as long as necessary,” Villeroy said Thursday in a speech to representatives of the financial sector in Paris. “The sprint of rate increases in 2022 becomes more of a long-distance race, and the duration will count at least as much as the level.”
The French official’s comments mark the first indication of how long the ECB’s cycle of rate increases could run, and come amid signs that the euro zone’s worst-ever bout of inflation may have passed its peak.
His colleagues have so far been cautious about reading too much into the recent data on consumer prices, reiterating their commitment to lifting borrowing costs further.
President Christine Lagarde has already pledged another half-point hike at the next meeting, in February — “and possibly at the one after that” — building on 250 basis points of advances since July. Money-market traders are currently pricing rates to peak at just below 3.5% by September.
Villeroy said that while December’s unexpected decline in France’s inflation rate is “encouraging,” it’s “not sufficient.” But he also said the ECB should be pragmatic and not become obsessed with rate increases that are “too mechanical.”
“Our forecast, and our commitment, is to bring inflation toward 2% between now and the end of 2024 to the end of 2025,” Villeroy said.
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