PARIS (Reuters) – The European Central Bank will raise interest rates as much as possible to bring down core inflation, even as year-end The pace may slow down later.
Villeroy, who is also governor of the Bank of France, said the euro zone’s core inflation rate of 4.8%, excluding energy and food prices that the central bank cannot control, was too broad and too high.
“We will raise interest rates as much as possible to lower core inflation,” Villeroy told Dutch newspaper NRC.
“By the way, this will have a positive impact on bank net income; therefore, European banks are more solid than some feared,” he added. Credit Suisse
After the ECB raised its main interest rate by 50 basis points in July and September, Villaroy said the next step for the ECB Actions must remain “orderly”. That doesn’t mean shaking markets or tightening the finances of households and businesses too suddenly, he said.
Villeroy said the ECB should raise interest rates “without hesitation before the end of the year” to a level where they neither stimulate nor drag the economy, estimating “below or close to” 2%”.
After that, the ECB will begin the second leg of its monetary policy normalization cycle, which he said will be “more flexible and possibly slower”.
“I’m not saying the rate hikes will stop there, but we will have to take a full assessment of inflation and the economic outlook,” he added.
