ECB’s Villeroy: Thursday’s Decision Doesn’t Mean Future Moves Will Also Be ‘Jumbo’ Size

9 September 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Friday said that Thursday’s 75bp rate hike should not be interpreted as the new standard for ECB moves.

Speaking at a Eurofi conference, Villeroy, who heads Banque de France, predicted a ‘significant slowdown’ next year of the French and European economies and said that a ‘limited recession’ could not be ruled out.

The frontloading of monetary policy normalisation was motivated by high inflation, in particular the elevated core rate, he said. ‘[T]here is for sure a significant energy and supply component in the euro area inflation; but it is also becoming broader and more domestic, and this is the field where we have to act’, he said.

As for the next move, he said, ‘Let me be clear: we have our hands completely free. Nobody should speculate that this will be the magnitude of the next step – we did not create a new “jumbo habit” –; nor that we simply must emulate other important central banks.’

It was too soon to identify the terminal interest rate, he said. The neutral rate was ‘below or close to 2%’, he said.

‘I sometimes use a simple metaphor: as long as it is about lifting off the accelerator, we have to act for sure, in a determined but orderly way, and we should be there by the end of the year’, he continued. ‘Afterwards, the question could come of pressing the brake, and tightening if needed: but this part of the journey remains today an open question, and will deserve further assessment and reflection, in due time.’

The ECB would take up ‘without delay’ issues including the ECB’s operational framework, the TLTROs and the remuneration of reserves, he said.