ECB’s Villeroy: Shouldn’t Stop Hiking Rates Until Core Inflation Has Clearly Peaked

7 November 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Monday said that interest rate hikes should continue until core euro area HICP has clearly peaked, but indicated that a slower pace of hiking may not be far away.

In an interview with The Irish Times, Villeroy, who heads Banque de France, said, ‘As long as underlying inflation has not clearly peaked, we shouldn’t stop on rates.’

Headline inflation, he predicted, would ‘peak in the first semester of next year’.

‘If you look at the energy component, which is significant, it will fade away starting probably from next spring’, he was quoted as saying. ‘If you look at evolution of prices in recent months, oil and more recently gas, they are at least stabilising and sometimes decreasing.’

Villeroy, according to the newspaper, said that it remained too soon to identify the terminal rate of the current ECB hiking cycle. ‘That said, we are not far from the neutral rate beyond which our hiking pace could be more flexible and possibly slower’, he added.

Economic strength, reflected in a baseline positive growth scenario for 2023 and robust job markets, meant that ‘we can raise interest rates without provoking significant unemployment’, he said.

‘To determine the level of growth next year, energy is more important than monetary policy. Our aim is not to provoke a recession but to tame inflation’, he said.