For the head of the Banque de France, François Villeroy de Galhau, it is time for the European Central Bank to start the “second half” of its monetary policy and proceed from January to increases in the more “flexible” key rates.
The ECB has sharply raised its reference rates since July to fight against inflation that is reaching all-time highs in the euro zone: 10.6% in October.
In favor of a rate hike of 0.50%
The head of the Banque de France believes that at the ECB meeting “on December 15 we should finish the first half, normalization” of monetary policy after several years of exceptionally low rates, close to zero or even negative since 2016.
“We will discuss Christine Lagarde (the president of the ECB, editor’s note) and I believe that the appropriate measure would be to raise interest rates to around 2%, a more normal rate in view of past levels,” he declared during a program on the LCI continuous information chain.
Currently, the main rate is 1.5%. François Villeroy de Galhau is, therefore, in favor of raising rates by 0.50 percentage points at the end of the next meeting in December.
Liquidity injections under discussion
For him, the December meeting will be “a turning point, not a stopping point.” Then imagine a “second part in which rate hikes will continue, but at a slower and more flexible pace, let’s say shorter passes,” he explained to spin the football metaphor, while the French team played a match against Poland to reach the quarterfinals of the World Cup.
He also mentioned the reduction of the ECB’s balance sheet, that is, the reduction of asset purchases in the financial markets by the institution.
These “injections of liquidity into the economy” were “strongly increased in 2021” and then “stabilized in 2022”. “We will discuss on December 15 to reduce them (…), but it must be done cautiously and gradually,” according to the head of the Banque de France.
Source: BFM TV
