ECB’s Villeroy: Should Reach Neutral Rate of Around 2% at Our December Meeting

5 December 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Monday said that this month’s monetary policy meeting of the ECB was likely to see euro area official interest rates reach neutrality at approximately 2%.

In a speech at a conference of the French Prudential Supervision and Resolution Authority, Villeroy, who heads Banque de France, called current inflation ‘far too high’ and the reason why ‘we central banks are acting with determination to bring inflation back to 2% within two or three years.’

Following the ECB’s 200bp of tightening to date, ‘we have come close to the neutral rate estimated at around 2% that we should reach at our meeting on 15 December’, he said.

The increase in interest rates was ‘good news’ for banks and insurance companies, he said.

‘It is too early to speak of a “terminal rate”: we will decide, meeting after meeting, what is necessary; and we do not steer market rates, which are sometimes excessively volatile’, he said.

The French economy should not experience a ‘hard landing’, he said, but an increase in energy costs equal to about 2% of GDP was likely to be permanent.