ECB’s Villeroy: No Need to Set Lift-Off Date; Asset Purchases Could End Around 3Q

22 February 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Tuesday said that there was no need to decide when interest rates in the euro area should start rising, but advocated stopping asset purchases around 3Q.

In an interview with French daily Libération, Villeroy, who heads Banque de France, said, ‘Today, we are gradually reducing monetary support. In March, we will stop the exceptional measures linked to Covid. The next step will be to stop the other asset purchases. I would argue for doing this around the third quarter and keeping our options open depending on the evolution of inflation.’

‘Time is of the essence in order to avoid mistakes: we should not act too late at the risk of letting inflation get out of hand, nor too early at the risk of slowing down the recovery’, he continued. ‘There is no need to decide now on the date of a future interest rate hike.’

As he has before, Villeroy predicted a post-pandemic inflation regime in which inflation would be near 2%, promised that the region would get there in the medium term and denied that indebted governments would be able to exert any pressure on the ECB.

France is ‘quite close’ to its inflation peak, ‘which should be reached in a few months, and then there will be a gradual decline this year followed by a drop below 2%’, he said.

He suggested that people would not wind up impoverished because of wages that lagged inflation.

‘In sectors that are attractive, such as the hotel and restaurant industry, high [wage] increases are justified’, he said. ‘But we should not move towards an overly general standard for wage increases based on the top of the “hump”: in a year's time, inflation will be much lower. There is a risk of fuelling a price-wage spiral, in which everyone would lose out, starting with employees. The best guarantee of increased purchasing power in the future is moderate inflation and stronger growth.’