By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said on Saturday that the neutral rate was not a destination and that the ECB should not decide now what it should do after the summer.
In an interview with French magazine Alternatives économiques, Villeroy, who heads the Banque de France, said that ‘[t]he farther you are from the [r] star, the more it gives you a guide to orient yourself. Conversely, the closer you get to it, the less useful it is.’
‘The neutral rate is neither a fixed point nor a stop’, he said.
Asked if the ECB could lower rates to or beyond 1.75%, Villeroy said uncertainty was very high.
‘It would be a mistake to determine today the direction we would take after the summer’, he said.
The ECB should wait until the second half of this year to have that debate, which would be determined by the evolution of inflation, he said.
‘I don’t think the ECB is lagging behind the economic situation’, he replied when asked if the central bank had to accelerate the pace of its rate cuts.
From the current perspective, the ECB’s interest rates could be at 2% by the summer, he said.
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