For Villeroy de Galhau, the ECB still has a “way” to go in rates but the essentials are done

The European Central Bank (ECB) still has “a little way to go” in the
raising its interest rates, but most of its work has already been done and the most important issue now is how long high rates last, Banque de France Governor François Villeroy de Galhau said on Wednesday.

After raising its rates at a rapid pace last year, the ECB is wondering about a possible slowdown in its monetary tightening and about the terminal level that its deposit rate, currently set at 3%, must reach to drive inflation towards its 2% target.

“We may still have a ways to go to raise rates at our next meetings, but I think it is premature.
decide now what we will do in May,” François Villeroy de Galhau said during a speech in Washington.

“We have already completed most of our journey of raising rates and the most important economic effect ahead of us will be the knock-on effect of what is already underway,” added the central banker, who sits on the board of governors of the ECB.

An increase of more than 25 basis points?

Markets are pricing in a further 75 basis point increase in ECB rates for September, but investors are split on the timing of those increases. While a 25 basis point rise is expected at the next ECB meeting on May 4, the case for a stronger rise has been strengthened recently.

However, François Villeroy de Galhau downplayed the impact of future rate hikes. “The lagged effect of our past rate hikes will be greater than our future decisions,” he said. The ECB indicated that once the rate peaks were reached, they would remain at a high level for a certain time, without giving investors more precision about their intentions.