PARIS (Reuters) – The European Central Bank (ECB) has reached the point where it must be wary of raising interest rates too high and try to avoid a hard landing in the economy, François said on Monday Villeroy de Galhau, member of the board of governors of the Frankfurt institute.

The ECB this month raised its main interest rate to the record level of 4% after ten successive increases but signaled that this cycle of monetary tightening, the most aggressive since the creation of the institution, was probably coming to an end .

Some central bank officials have nevertheless since indicated that a further rate hike was possible in the face of persistent high inflation in the euro zone.

In August, price increases in the bloc stood at 5.2% year-on-year, well above the ECB’s 2% target.

For François Villeroy de Galhau, the risk of doing too much, and thus triggering an economic recession, and the risk of not doing enough are currently symmetrical.

If the ECB does too much, it could run the risk of having to quickly reverse course, he said during a conference at the Bank of France.

“Therefore, ‘test until you break’ is not a reasonable way to calibrate monetary policy,” he observed.

“This suggests we should now focus on policy persistence rather than constantly rising rates – duration rather than level.”

François Villeroy de Galhau believes that the current level of interest rates is high enough to bring down inflation and that if the markets fully integrate the ECB’s strategy, they should not expect rate cuts “before a period of sufficiently long time”.

The ECB forecasts that inflation will remain above 3% in 2024 and will only be below its 2% target in the last quarter of 2025.

While the current rebound in oil prices is not comparable to the energy shock of 2021-2022, it should be monitored for possible knock-on effects on inflation expectations and wages, said François Villeroy de Galhau .

(Reporting Leigh Thomas, Blandine Hénault for the , edited by Bertrand Boucey)

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