Mar 31, 2023
Villeroy Says ECB May Still Have ‘a Little Way to Go’ on Rates
(Bloomberg) -- The European Central Bank may still have a little way to go on raising interest rates, Governing Council member Francois Villeroy de Galhau said after data showed persistent upward pressure on prices for core goods and services in the euro area.
“Although we have completed most of our rate-hiking journey, we may possibly still have a little way to go,” Villeroy said in an interview with German newspaper Frankfurter Allgemeine Zeitung published Friday. “After that, we need to stay the course for as long as necessary.”
The French central banker’s comments reflect growing confidence among policymakers that they can continue to tighten policy in their fight against inflation, despite recent fears over the health of the banking sector sparking turbulence on financial markets.
At its last policy meeting this month — in the midst of the crisis that engulfed Credit Suisse — the ECB abandoned giving any indication of its intentions on rates.
Since then, markets have stabilized somewhat, while data continue to show inflationary pressures remain strong. Figures earlier Friday for the euro zone showed underlying price gains hit a record 5.7% in March, even as the headline measure plunged by the most on record.
“We will only win the battle against inflation once we have also dealt with underlying inflation,” Villeroy said.
Still, he stressed that there’s a “fairly powerful impact” still to come from the ECB’s past rate increases, which take between one and two years have an effect. Officials have lifted the deposit rate to 3% from below zero mid-last year — the most aggressive bout of tightening in ECB history.
Shortly after Villeroy’s comments were published, money markets eased rate hike wagers slightly, betting on a 3.58% peak by October compared to 3.60% previously.
Other comments from Villeroy in the FAZ interview:
- “Europe’s financial sector, and especially its banking sector, is sound”
- Financial stability and price stability goals “are not necessarily incompatible”
- “For the great majority of European banks, higher interest rates are beneficial”
--With assistance from James Hirai.
(Updates with market reaction in eighth paragraph.)
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