European Central Bank (ECB) interest rates will remain high for some time after the period of rate hikes is over. This is necessary to bring inflation down, said ECB board member François Villeroy de Galhau at a conference in Aix-en-Provence.
“I expect that we will soon reach the highest point in interest rates,” said the head of the French central bank. “But when I say peak, that is not a peak, but rather a high plateau that we need to stay on long enough to fully pass on all the effects of our policies.”
The ECB has been increasing borrowing costs at a record pace since mid-2022, after a period of historically low interest rates. In this way, the central bank hopes to bring inflation down to a level of around 2 percent. Villeroy de Galhau expects this to happen before 2025.
Criticism
He also criticized remarks made by the French finance minister at the same conference. He suggested on Saturday that there should be “no taboos” around the question of what the ECB’s inflation target should be. The minister was pleased with a debate between economists about the usefulness of an inflation target higher than 2 percent, which could depress interest rates and make investments in climate cheaper.
“I think this is an example of an idea that falsely sounds good. If we announced that our inflation target was 3 percent instead of 2 percent, lenders would immediately ask for higher interest rates,” he said. Banks would then want a risk premium because of the unpredictability.
The top man at the ECB compared it to the ninth stage of the Tour de France, which ends on Sunday with the ascent of the Puy de Dôme. If the organizers had placed the finish at the foot instead of at the top of the volcano, “they would have lost all credibility for the rest of the race.”
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2023-07-09 11:38:35
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