The governor of the Bank of France (BdF) on Monday called for ECB rates to be maintained at their current level for an extended period, preferable according to him to further increases which would put the economy at risk.
Franois Villeroy de Galhau, who is a member of the ECB Governing Council, was speaking to economists as part of a Paris conference on “The challenges of monetary policy for the macroeconomy”. “We are more and more confident” about a return of inflation “to around 2% in 2025”, noted the governor, inviting us to now think “about the path” to achieve “a soft landing”, after ten increases in inflation. consecutive rates by the ECB to calm inflation.
“Between doing too much and not doing enough, in my opinion the risks are present at least symmetrical,” he declared. Noting that inflation could remain permanently high “if we do not do enough”, Franois Villeroy de Galhau noted that in this case it was “always possible to do more”.
On the other hand, if excessively strong increases led to “a recession and a violent deceleration of inflation”, we “would have to quickly reverse course”: “pushing things to the limit is not a sensible way to calibrate monetary policy” he declared, while some members of the ECB seem to want to go further.
The governor also stressed that there was “a risk of lowering rates too soon”. He therefore advocates “patience and perseverance”, that is to say maintaining the current position, “which does not mean inaction” since it is sufficiently “restrictive” to bring down inflation. He nevertheless observes that an exaggerated rise in oil prices should be monitored. “A persistent strategy is not an indication that rates will never rise again,” he said. The President of the ECB Christine Lagarde indicated on September 14 after the last increase “that we cannot say that we have reached the peak”.
Franois Villeroy de Galhau finally estimated that the first rate increase in the series “could have been done earlier than July 2022”. “But it is unlikely that this would have happened more than one or two meetings earlier,” he said. He also did not rule out a future return to the use of the fforward guidance which consists of a central bank warning the markets of its intentions. But the use of this tool will have to be “more indicative and “more modest”, he said.
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