ECB’s Villeroy: No Automaticity About Time Between End of Net Asset Purchases and Rate Hike
11 March 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Friday indicated that financial markets might not have appropriately assessed the timing of an ECB rate hike, given the absence now of automaticity between the end of net purchases and rates lift-off.
In an interview with French business news channel BFM Business, Villeroy, who heads Banque de France, said that the economic situation ‘has indeed been greatly changed by the war in Ukraine’, but that Thursday’s decision by the Governing Council was ‘something probably quite close to what we would have done in the absence of the Ukrainian crisis, even though the Ukrainian shock is adding inflation.’
In essence, he said, the ECB had simply decided to ‘take our foot off the inflation accelerator, precisely to avoid having to press the brake suddenly in the future.’
An interest rate hike might or might not happen later, he said. In this context, he noted that other leading central banks were ‘taking much tougher measures’ to counter inflation and in part have already hiked rates.
For the ECB, there is ‘no longer any automaticity between the end of these net purchases of assets and a possible increase in interest rates’, he said, suggesting that markets hadn’t properly digested this.
‘What does it mean, some time after?’ he said. ‘It's completely open, there's no automation, it can be long, and we'll take all the time we need. We will judge at that time, based on inflation data and the economic situation.’