François Villeroy de Galhau, governor of the Banque de France and member of the council of the European Central Bank (ECB), persists and signs. During a speech at the Society of Professional Economists in London on Monday, he once again judged that it was premature to speculate on a rate cut.
“ There are not only summits and descents: there are also plateaus, where you can feel the effects of altitude and appreciate the view,” underlined the governor of the Bank of France. As a reminder, he had already judged last week that the ECB’s interest rates, kept unchanged during the last monetary policy meeting, would no longer increase ” except shock ” And ” except surprise “.
He then emphasized that “ the cure » of the rise in rates « is not pleasant “, but “ effective ». There BCE ended a streak of 10 consecutive hikes last month by leaving rates unchanged, prompting investors to question when rate cuts might take place.
The fall in inflation is not stopped by the conflict in the Middle East
The ECB has set itself the objective of bringing inflation in the euro zone to around 2% by 2025, even if François Villeroy de Galhau insists that this figure must be seen as an order of magnitude, not an target to the nearest decimal point. The conflict in the Gaza Strip and variations in oil prices do not seem to stop the decline in inflation, although fluctuations should be expected over the coming months, he also stressed.
While inflation has fallen rapidly in recent months as the euro zone economy has slowed, the governing council member sees a ” soft landing » than an entry into recession. In mid-November, Christine Lagarde, President of the ECB, qualified “honorable” the last known value of inflation in the euro zone, 2.9% in October. But it should not be assumed that it’s something that should be taken for granted and will last a long time », she decided during a television interview with the Financial Times.
Indeed, a good part of the significant drop in the inflation rate in recent months is linked to a decline in energy prices, which can be explained by a ” basic effect » compared to the sharp increases recorded in October 2022. These effects will no longer recur in the coming months. Also it will be necessary “ really watch the price of energy in the future », Underlined the president of the financial institution.
Although interest rates are expected to remain at current levels for the foreseeable future, the governor of the Bank of France said it may be necessary to end Emergency Purchase Program bond buybacks in the face of pandemic (PEPP) ahead of schedule at the end of 2024. He added that in the future the ECB may need to return to some form of interest rate planning, provided this does not bind it not hands. “ Central banks must be predictable, but not constrained by their commitments “.
Discordant voices among ECB members
François Villeroy de Galhau can count on the support of the governor of the German central bank who estimated on Friday that interest rates should not be lowered “ too early “. For the manager, it is about being “ patient and stay the course to reap the benefits of the tightening in terms of disinflation “. A point of view which is not completely shared by the Austrian central banker Robert Holzmann who, addressing the markets, said that we should not believe that “ This is the end of the rate hike story “.
Isabel Schnabel, member of the ECB executive board, even asked last week not to “ close the door to a further rise » interest rates on the potentially unstable path to bringing inflation back to 2%. For his part, the President of the Belgian Central Bank, Pierre Wunsch, affirmed that instead of relaxing its policy, the ECB should tighten it further, by ending its bond purchases in the part of the €1.7 trillion pandemic emergency purchasing programme.