ECB’s Villeroy: Good News on Growth Gives ECB Means to Hike

17 January 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member Francois Villeroy de Galhau said on Tuesday that good news on growth would help the ECB hike its key interest rates.

Speaking to French business news channel BFM Business on the margins of the World Economic Forum in Davos, Switzerland, Villeroy, who heads the Banque de France, said that a recession in the euro area was increasingly unlikely and that the economy would achieve a soft landing.

‘The resilience of the economy gives us the means to raise interest rates in a pragmatic and reasonable way’, he said.

The outlook for the euro area is looking increasingly positive, he said: 'A recession or hard landing for the European economy was feared, but it will not happen, except for an unexpected shock.'

Villeroy sought to draw a distinction between the ECB’s monetary policy approach in the second half of 2022, when the central bank raised rates ‘very quickly’, and the path forward in 2023, saying that ‘today we will raise [rates] in a more pragmatic way’.

He defended the ECB’s record in tackling recent high inflation in the Eurozone, saying that criticism from ‘both sides’ that policymakers were either tightening too much or too little was proof that central bankers were navigating ‘a steady path along the ridge with good balance’.

When asked to consider the inflation outlook for 2023, he said he saw both headline and core inflation peaking in the first half of the year. Recent inflation readings from across the euro area were ‘encouraging signs’ in his opinion, though he noted that core inflation was yet to reach its peak.

Such a peak in core inflation would be the ‘real sign’ that inflationary pressures were beginning to subside, he said.