© Reuters. FILE PHOTO: Bank of France Governor Francois Villeroy de Galhau delivers a speech during the annual meeting of Small and Medium-sized Enterprises leaders at the Bank of France in Paris, France, October 22, 2021. REUTERS/Sarah Meyssonnier
PARIS (Reuters) -The European Central Bank is merely curbing stimulus, not tightening policy, and an interest rate increase will not be automatic, French central bank chief Francois Villeroy de Galhau said on Friday.
The ECB accelerated its exit from copious bond buys in a surprise move on Thursday, opening the door for an interest rate increase late in the year, despite the uncertainty created by Russia’s war in Ukraine.
“We have said that if the rise in interest rates were to start, it would be very gradual,” Villeroy told BFM Business radio. “We have decided to lift our foot off the accelerator … but there is not the automaticity we seen in other central banks.”
Finnish central bank chief Olli Rehn, an advocate of caution ahead of the meeting, also confirmed this view on Friday.
“Any adjustments to the key ECB interest rates will take place some time after the end of (asset buys) and will be gradual,” Rehn said.
Markets now price in around 40 basis points of rate hikes by the end of the year, though economists are more cautious, generally predicting one 25 basis point increase in the ECB’s minus 0.5% deposit rate.
Villeroy, usually considered a centrist on the ECB’s 25-member Governing Council, also appeared to dismiss analyst warnings that surging commodity prices could drag the bloc into a recession.
“Growth remain positive, there is no recession,” he said.
The ECB was widely seen staying put on Thursday but inflation pressures, already building well before the war in Ukraine, trumped all other considerations.
Inflation is seen rising to 5.1% this year, more than twice the ECB’s 2% objective and see holding above target next year, too for the third straight year of overshoots.
In 2024, however, the ECB sees inflation back under 2%, a view Villeroy also confirmed.
“Inflation in Europe should get back down to around 2%”, he said.
ECB merely stepping off accelerator; rate hike not automatic: Villeroy
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