Future interest-rate increases by the European Central Bank should be limited in size and number, as much of the impact of past hikes is still to arrive, Governing Council member Francois Villeroy de Galhau said.
(Bloomberg) — Future interest-rate increases by the European Central Bank should be limited in size and number, as much of the impact of past hikes is still to arrive, Governing Council member Francois Villeroy de Galhau said.
“Most of the effects to come for the economy are from what’s already in the pipeline — we’ve completed most of the path,” the Bank of France Governor told the Le Figaro newspaper in an interview published Monday.
“There may be a need for a few more hikes,” he said. “But in my opinion, they should be limited both in their number and from now on in their size.”
The remarks suggest Villeroy may be leaning toward a smaller rate move when officials next set policy on May 4 — a meeting that’s expected to select between a quarter- or a half-point increase.
President Christine Lagarde said last week that there’s still a little way to go for the ECB, depending on factors including the impact of the recent financial turbulence on bank lending. Klaas Knot, the Dutch central bank chief, said the ECB may also need to raise rates in June and July.
Markets are fully pricing in a 25 basis-point increase next month, with a nearly 30% chance policymakers will opt for 50. Investors see the deposit rate rising to at least 3.75% this year, from 3% currently.
Still, Villeroy told Le Figaro that there’s a risk underlying inflation is more persistent than the headline gauge including energy and food costs. He repeated his view that the ECB will hold the deposit rate at its peak for as long as needed to return inflation to the 2% goal by end-2024 or end-2025.
“Being more moderate on the level does not, however, mean being less determined in the long term,” he said. “We’ll keep these fair rates as long as necessary to defeat inflation.”
–With assistance from Alice Gledhill and Greg Ritchie.
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