ECB’s Villeroy: No Reason for ECB To Raise Interest Rates Next Year

19 October, 2021

By David Barwick – FRANKFURT (Econostream) – Inflation will subside by end-2022 to below the European Central Bank’s price stability target, so that there will be no reason next year for interest rates to be hiked, ECB Governing Council member François Villeroy de Galhau said Tuesday.

In an interview on French radio network France info, Villeroy, who heads Banque de France, said that although headline inflation was currently above 2%, ‘it will be back below 2% by the end of next year. So there is no reason today, for example, for the European Central Bank to raise interest rates next year.’

Villeroy said he was ‘not here to make an exact prognosis on the duration’ of the increase in energy and commodity prices. Average purchasing power was maintained last year despite the recession, and should be this year as well, he said.

The latest data confirm a strong French economic recovery, he said, citing surveys of consumers and companies. Only the automotive sector, unlike industry and construction, is slowing down now because of supply constraints, and ‘we have every reason to believe' that these constraints are temporary, he said.

Recruitment difficulties are ‘the number one problem in the French economy over the long term’, he said, with 53% of companies reporting problems in this respect despite simultaneously high unemployment.

Villeroy reconfirmed the French central bank’s domestic growth forecasts of 6.3% this year and 3.7% next year and said the French economy had nearly returned to pre-pandemic activity levels. Both France and the euro area ‘will have caught up with the pre-Covid level of activity by the end of the year, i.e. a little sooner than we imagined a few months ago’, he said.

The problems in connection with Chinese company Evergrande would not lead to any contagion outside China, he said. ‘It's a serious problem for the Chinese authorities, I think they will deal with it, it's likely that the main consequence will be a certain slowdown in Chinese growth’, which could dampen commodity price growth, he said.