FRANKFURT, May 6 (Reuters) – The European Central Bank (ECB) is expected to bring its deposit rate back into positive territory this year, Francois Villeroy de Galhau said on Friday, remarks that indicate the member of the institution’s Governing Council supports at least three rate hikes in 2022.
The ECB has begun to reduce its exceptional support for the economy, but the record level of the consumer price index and the rise in long-term inflation expectations are prompting more and more members of the ECB to recommend the more rapid termination of unconventional monetary policy instruments.
The ECB should initially cease its bond purchases at the end of June, then raise its deposit rate at “next” monetary policy meetings, François Villeroy de Galhau said, without specifying a date for the start of rate hike.
Some ECB members have recently advocated a rate hike in July, which met with little opposition from the institution’s ‘doves’, suggesting that a rate hike this summer was now the option. most likely.
“I would prefer to place the marker a little further: barring new unforeseen shocks, I would think it is reasonable to have entered positive territory by the end of the year,” said the governor of the Banque de France. during a conference organized in Paris.
A return to the positive zone of the deposit rate, currently at -0.5%, would imply at least three rate hikes of a quarter point between now and the end of the year.
The European Central Bank should then gradually move its nominal rate towards a “neutral” level, ie between 1% and 2%, added François Villeroy de Galhau.
The level of inflation is the main justification for rate hikes, with recent surveys suggesting that inflation expectations are “less and less” anchored around the ECB’s 2% target.
Rate hikes could also support the euro against the dollar, the weakness of the single currency favors imported inflation.
“The level of the euro matters a lot for imported inflation,” said François Villeroy de Galhau. “A euro that is too weak would run counter to our objective of price stability.” (Report Balazs Koranyi in Frankfurt and Marc Angrand in Paris, French version Laetitia Volga, edited by Kate Entringer)