ECB’s Villeroy: Could Be Below or Close to 2% by Year’s End
14 September 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Wednesday said that interest rates in the Eurozone could be below or close to 2% by the end of the year.
Speaking at the Michel Camdessus Central Banking Lecture in Washington, D.C., Villeroy, who heads Banque de France, said that given elevated inflation, ‘Monetary normalisation is consequently fully warranted in the euro area among others.’
Although too soon to say what the terminal rate would be, the nominal neutral rate is ‘below or close to 2%’, he said, ‘and we could be there by the end of the year.’
‘Until then, we definitely have to act, in a determined but orderly way’, he continued. ‘Doing so is normalisation, only beyond R* would tightening begin if needed.’
Whilst the US is nearer the point of tightening, there and in the euro area a monetary policy response is ‘not only a legal duty, it’s also an ethical commitment’, he said, and ‘our will and our capacity to deliver on our mandate cannot be subject to any doubt whatsoever.’