ECB Not Obliged to Hike at Every Meeting Until September, Villeroy Says

22 February 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said on Wednesday that the ECB was not necessarily going to raise rates at each one of its five monetary policy meetings between now and September, by which month he expects rate hikes to end.

In an interview with French financial newspaper Les Echos, Villeroy, who heads Banque de France, said that markets had got carried away since last Thursday with their expectations of the ECB’s terminal rate. Swap markets are now pricing in a rise to 3.75% by September, from 2.5% currently.

‘We will in no way be obliged to raise rates at every Governing Council meeting between now and September’, he said.

There had been ‘an excess of volatility in the expectations of the terminal rate’ in financial markets recently, he said. ‘In other words, the markets have overreacted a bit since Thursday.’

The ECB was ‘already in restrictive territory with a deposit rate at 2.5%, let alone when it reaches 3% in March’, he said.

Fellow Governing Council member and Bundesbank President Joachim Nagel said last Thursday that ‘from today's perspective, I don't see that we are in restrictive territory', whilst Bank of Finland Governor Olli Rehn was reported by German financial daily Boersen-Zeitung on Tuesday to consider interest rates not yet restrictive.

On the prospects for an end to ECB rate hikes, Villeroy said that ‘the stabilisation will have to come, in my view, when we have a clear turnaround in core inflation.’

Such a stabilisation ‘will require a degree of judgement, combining actual data and forecasting', he said.

Headline inflation was ‘close to the peak’, he said. This was not the case for core inflation, although it was ‘already rising less quickly.’