ECB’s Villeroy: Would Be Good to Reach Terminal Rate by Summer
5 January 2023
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Thursday said the terminal rate would ideally be reached by summer and the ECB would remain there as long as necessary.
In a speech in Paris, Villeroy, who heads Banque de France, said that the ‘good news’ was that French growth had held up better than expected. ‘[H]owever, inflation must not become entrenched’, he said. ‘It is the number one concern for French people, and defeating it is our number one mission.’
The decline in France last month was ‘encouraging but still not enough’, he continued. ‘It should peak in the first half, before declining towards 4% by the end of this year.’
To achieve the commitment of getting inflation ‘down towards 2% by end-2024 to end-2025’, he said, the ECB hiked interest rates to close to neutral last month and is now in a ‘second phase’ of policy tightening.
‘[I]deally, it would be good to reach the right “terminal rate” by next summer, but it is still too early to say what that level will be’, he said. ‘We need to remain pragmatic and to be guided by observed data, including on core inflation, without getting fixated on overly mechanical rate hikes.’
‘We will then be prepared to remain at this terminal rate for as long as necessary: the sprint to raise interest rates in 2022 is now becoming more of a long-distance race, and the duration will count at least as much as the level’, he added.