Villeroy Sees ECB Adopting ‘More Gradual and More Pragmatic’ Pace of Hikes

1 March 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said on Wednesday that interest rate hikes would proceed at a more gradual pace after March.

Villeroy, who heads the Banque de France, told members of the French parliament’s finance committee that ‘we are now entering a new phase of monetary policy … it will be longer - we must not claim victory too quickly - but more gradual and more pragmatic in the pace of the next hikes.’

He repeated his opinion that it was ‘desirable to reach [the] terminal rate by the summer, i.e. by September at the latest’, though he did not provide guidance on how high rates could go, saying that ‘our decisions will be guided by the economic data.’

‘Our central criterion for monetary stabilisation should be a turnaround in the underlying inflation path that is considered to be fairly certain’, he said. His comments echo those of other Governing Council members in recent days, who have signalled that a simple decline in core inflation would not be enough for the ECB to stop tightening, but rather that a sustained change in underlying inflation dynamics would be necessary.

The current data were ‘not yet at this turnaround, this economic threshold’, he said.

The inflation figures published yesterday for France and Spain, which surprised to the upside, ‘call for vigilance and perseverance in our monetary action’, he said.

The outlook for growth had improved, he indicated. ‘The risk of recession that was hanging over our economies can now be dismissed, barring a major world event', he said.

Villeroy revealed during the hearing that the Banque de France, unlike some of its Eurosystem counterparts, made a profit in 2022.

‘The Banque de France will still have a positive result for the year 2022 … For the next few years, its net monetary income will, like almost all the world's central banks, be reduced by the rise in interest rates', he said.