ECB’s Villeroy: Interest Rates at Neutral Levels, Will Have to Go ‘a Bit Further’

13 January 2023

ECB’s Villeroy: Interest Rates at Neutral Levels, Will Have to Go ‘A Bit Further’

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said on Friday that interest rates had roughly reached their neutral level but that further rate hikes would be necessary this year.

In an interview on French TV station France 5, Villeroy, who heads the Banque de France, said that inflation would likely peak in the coming months in France and decline to roughly 4% by the end of 2023.

‘We need to raise rates’, he said. ‘Today, central bank rates are at 2%, which is considered to be about the equilibrium rate that does not stimulate inflation and does not slow it down.’

‘We probably have to go a bit further in the coming months’, he added.

In France, he predicted, inflation ‘should peak in the coming months, in the first half of the year, and then be around 4% at the end of this year’.

The Banque de France thinks the country is going to escape a recession, he said, though the economy will experience ‘a slowdown’.

Uncertainty regarding future energy prices made it difficult to say when inflation would return to the ECB’s 2% target, he said. As usual, he promised that the Banque de France and the ECB would reach the price stability goal of 2% inflation over the medium term.

Inflation will return to 2% either ‘by the end of 2024 or the end of 2025’, he said, though ‘there is a risk due to energy prices’.