By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said on Thursday that speculation and statements about the timing of the ECB’s next interest rate hike seemed like “disguised forward guidance.”
In a speech at the GIC/Banque de France conference in Paris, Villeroy, who heads the Banque de France, said that since last week’s Governing Council meeting, “I have read a great deal of speculation and several statements about the timing of our next interest rate hike at the ECB; this strikes me as looking a bit too much like disguised forward guidance.”
Policymakers should not be guided by a date but by data, he added, noting that they should instead use what he called “soft signaling” to clarify the ECB’s reaction function.
“Our attention must be focused on second-round effects, and for that purpose on three key indicators: core inflation, both current and projected; medium-term inflation expectations, in particular those of households and firms; and developments in wages,” he said.
Villeroy said central banks had successfully navigated a series of shocks over the past ten years, including the low-inflation period before 2020, the Covid crisis and the inflation surge of 2022-23, while avoiding a global financial crisis.
“Monetary policy remains ‘the first game in town’,” he said, arguing that other areas of economic policy had often failed to provide sufficient support.
Central bank independence remained essential in a world facing persistent geopolitical tensions and economic shocks, he said, adding that political pressure on monetary authorities risked undermining their credibility and ability to maintain price stability over the medium term.
He said monetary policy could not solve every economic problem alone and called for stronger contributions from fiscal and structural policies. According to Villeroy, governments needed to play a greater role in supporting growth, investment and economic resilience.
Despite the challenges, Villeroy said central banks had emerged from the past decade stronger and more credible. “In an environment marked by unprecedented unpredictability, they have strengthened their credibility,” he said.
Related articles: