Market: The ECB will raise rates as much as necessary, says Villeroy
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PARIS (Reuters) – The European Central Bank (ECB) will raise its key rates as much as necessary to stem underlying inflation even if the pace of monetary tightening could slow after the end of the year, François Villeroy said on Tuesday. Galhau, member of the Governing Council of the ECB.

Francois Villeroy de Galhau, also governor of France’s central bank, said “core” inflation, which excludes energy and unprocessed food – two volatile categories – was too widespread and too high in the zone euro.

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“We will raise rates as much as necessary to bring down core inflation,” he said in an interview with the Dutch daily NRC.

“This will have a positive effect on banks’ net banking income, so European banks are stronger than some fear,” he added.

European banks have come under pressure from financial markets in recent days over concerns about the financial health of Swiss-based Credit Suisse. After the ECB’s rate hike of 50 basis points in July and 75 in September, François Villeroy de Galhau believes it is important that the institution’s next steps remain “orderly”, which he says will means that we must not surprise the markets, nor tighten financial conditions for households and companies too abruptly.

Francois Villeroy de Galhau said the ECB should raise rates “without hesitation, by the end of the year” to reach the neutral rate, which neither stimulates nor hinders growth. He estimates that this neutral rate is at a level “below or close to 2%”.

After that, the ECB will begin the second stage of its cycle of monetary normalization, which he said will be “softer and possibly slower”.

“I’m not saying the rate hikes will stop there, but we will need to do a full assessment of inflation and the economic outlook,” he added.

(Report Leigh Thomas, Laetitia Volga, edited by Sophie Louet)

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