PARIS (Reuters) – The European Central Bank’s move on interest rates next week must be “orderly and predictable”, French ECB policymaker Francois Villeroy de Galhau said on Wednesday.
With euro zone inflation at record levels, policymakers are increasingly concerned that even long-term expectations may move above the ECB’s 2% target.
That leaves the choice at its next policy-setting meeting next week largely between a 50 and a 75 basis-point hike after the ECB raised the deposit rate by 50 basis points to zero last month in its first hike in over a decade.
“After a first rate hike in July, we will take a decision on the next step next week. We should do it with determination but (also) in an orderly and predictable way,” Villeroy said in an interview with regional French newspaper Ouest France.
Villeroy said that the spike in inflation, initially driven by rocketing energy prices, was spreading to the broader economy, and feeding into services although there were not signs of a wage price spiral at present.
Official data published on Wednesday showed that inflation in the 19 countries sharing the euro currency accelerated to 9.1% in August from 8.9% a month earlier.
That was slightly stronger than expected, adding pressure on more dovish ECB policymakers in favour of a 50 basis point move next week.
Despite the current energy price shock, Villeroy said that a recession in Europe was unlikely for 2022, but that nothing could be excluded for next year.
He added that the French economy would grow at least as fast as the 2.3% the central bank forecast in June, but that it would see a sharp slowdown in 2023 although probably not a recession.
(Reporting by Leigh Thomas; Editing by Alexandra Hudson)