NEW YORK (Reuters) – Inflation in the euro zone is likely to stagnate above 2%, Banque de France Governor François Villeroy de Galhau said, adding that the European Central Bank (ECB) would continue to fight the price increase.

The ECB has hiked rates by 350 basis points since July 2022 and further hikes look likely as the rise in prices is still too high and the underlying price pressures, which eliminate volatility in commodity prices. food and fuel, continue to increase.

“We are now facing the risk of persistent inflation, which resides in the underlying or ‘core’ component,” François Villeroy de Galhau, a member of the ECB’s Governing Council, said on Tuesday in New York. “Inflation has become more widespread and potentially more persistent.”

The Governor of the Banque de France, however, considered that monetary policy was more effective in combating underlying inflation and indicated that he expected to see price inflation return to around the 2% target. set by the ECB at the end of 2024 or in 2025.

Markets expect the ECB to raise rates by 25 basis points at its May meeting, with more modest hikes more appropriate as the institution nears its peak rate.

“At the ECB, we are moving from a ‘sprint’ to a ‘long-distance race'”, said François Villeroy de Galhau, adding that the outlook for inflation, core inflation figures and the effectiveness of the transmission of the policy will be determining factors for the next decisions of the bank.

Markets estimate that the ECB’s 3% deposit rate will peak at 3.65% by the end of the third quarter, suggesting that two 25 basis point increases are fully priced in and investors are split on a third raise.

(Report Balazs Koranyi; Camille Raynaud)

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