The European Central Bank will keep interest rates at 4% for as long as needed to tame inflation, Governing Council member Francois Villeroy de Galhau said — indicating he doesn’t favor future increases at this stage.
“Looking at the situation today, we think that is a good level and barring surprises — we are pragmatic, we look at how inflation evolves – it’s more important now to be patient, to be tenacious,” he told BFM TV Tuesday. “We have the right dose, but we have to take the medicine for a sufficiently long time and we will see the deceleration of inflation.”
The comments come after the ECB raised borrowing costs last week for a 10th successive meeting — despite push-back from more cautious officials. President Christine Lagarde said she can’t say if that will be the peak, and more hawkish colleagues have since stressed it may not be the last hike.
The current level is a “plateau, but I won’t say anything on the length of the plateau,” he said. “We are very pragmatic: we look at how the illness, inflation, evolves. There are the first encouraging signs, but as the illness diminishes, and one day disappears, that’s to say we get back toward 2%, we will stop taking the medicine and at that point ECB rates can come back down. We are not there today. It’s important to be patient.”
His remarks come a day after the Bank of France, which Villeroy heads, published an update of macroeconomic forecasts that showed upward revisions to inflation for this year and next. But projections for weaker readings of underlying measures that the ECB has recently focused on were lowered.
The French central bank revised its economic-growth forecasts up for this year after a strong performance in the second quarter, but trimmed the outlook for 2024 and 2025.
“It’s a scenario of disinflation without growth tumbling, but without a rapid re-acceleration of growth either,” Bank of France chief economist Olivier Garnier said.
(Updates with quotes to BFM TV starting in second paragraph.)
