2024-02-16 19:58:26
François Villeroy de Galhau underlined the risk of lowering the European Central Bank’s rates too soon, but also of waiting too long to reduce them and thus weighing “excessively on activity”, in an interview with the Echo, this Friday February 16.
The governor of the Bank of France confirmed this Friday, February 16, that the ECB rates should fall this year. “The principle of lowering our rates this year seems certain,” declared François Villeroy de Galhau in an interview with the Belgian daily L’Echo.
“We must trace the right path between two risks: either to drop too soon with inflation starting to rise once more, or to wait too long and weigh excessively on activity. From now on, the second risk exists at least as much as the first,” he said. he added.
Concerning the evolution of prices and the transmission of monetary policy to the economy, the governor observes “solid indicators of disinflation”. As for underlying inflation (excluding the most volatile prices, editor’s note), he considers its development “encouraging”.
“Act with gradualism and pragmatism”
“For its future rate cut, the European Central Bank (ECB) has three degrees of freedom: the timing of the first cut, but also the pace of the easing therefollowing, and the final level of rates,” explained François Villeroy de Galhau.
This freedom of action can constitute “one more argument for not delaying the first reduction excessively”. It therefore calls for a pragmatic gradualism, without haste but without exaggerated wait-and-see attitude.
Without “rushing”, “acting with gradualism and pragmatism may be preferable to deciding too late and then having to over-adjust”, insists the governor, who “keeps like (his colleagues) an unshakeable compass, bringing inflation to 2%”. “Barring any shock, we will achieve this commitment by next year,” he believes.
“Significant margin of decline”
The governor also suggests “taking into account other more forward-looking indicators” than data on salaries, which are not available before April according to L’Echo.
He cites “the degree of tension in the labor market” and “what is happening in terms of negotiated wage agreements”. In France in any case, he observes that the percentage of companies facing recruitment difficulties has fallen in six months from 52% to 41%, and that there is a slowdown in nominal salary increases for 2024. Two factors pointing to a slowdown in inflation.
Finally estimating the ECB’s “neutral nominal rate” “around 2% or slightly higher”, he considers that, without this being “an obligatory target”, there is “a significant margin of reduction” compared to 4%. current, “without returning to an accommodating monetary policy”.
Most read
1708128328
#governor #Banque #France #invites #wait #rates
