The member of the board of the ECB, Francois Villeroy de Galhau, opposed the idea of raising interest rates by half a percentage point, as the Bank wants to reduce its support program gradually, amid rising inflation.
“An increase of 50 basis points is not something that is being agreed upon at this point, I’m clear,” he told Bloomberg Television from Davos.
“Interest rate increases will be gradual.”
France’s central banker echoes ECB President Christine Lagarde’s earlier statements that ECB members “should not be in a hurry and we should not panic”.
“It will be a normalization of our monetary policy, it is not a tightening. What we are doing is letting go of the gas,” he said.
The pace of the ECB’s subsequent moves will depend on real inflation and activity data, with the aim of reaching a neutral interest rate next year – which, according to Villeroy, is somewhere between 1% -2% in nominal terms in the eurozone .
Only when this percentage is reached will the question of tightening make sense, he added.
As the ECB begins to raise interest rates, it will be careful to avoid an “unwarranted” widening of margins in the eurozone, Villeroy said, noting the central bank’s intervention in the PEPP asset market program in 2020.
“We have the will and the capacity to act if necessary. No one should expect the ECB to be absent in the event of fragmentation,” he added.
Source: Capital
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