BRIEF: ECB's Villeroy-Don’t Jump To Conclusions On Rate Hikes

Bank of France Governor Francois Villeroy advised markets not to rush to premature conclusions about the ECB’s next rate moves, following Thursday’s publication of economic projections showing inflation above its 2% target level in 2025.

“Nobody should rush to a premature conclusion about our calendar nor about our terminal rate,” he said in a speech today, after ECB President Christine Lagarde told reporters on Thursday that rates would rise again in July barring a major data surprise, and Belgium’s central bank chief warned of a possible hike in September.

The ECB remains “data-, not forecasts-driven,” Villeroy said.

“Monetary policy is at work, and is working,” he said. “Inflation has peaked in the euro area, core inflation has declined for the second consecutive month, and there are several signs that underlying price pressures are softening.”

Villeroy said the ECB had “covered most of the ground” to control inflation, and reiterated his view that the time the terminal rate is maintained is more important than its precise level.

“The key issue now is the transmission of our past monetary policy decisions, which is proceeding forcefully to financial conditions but could take up to two years for its full economic effects. Hence, the duration matters more than the level; persistence matters more than the peak.”