ECB’s Villeroy de Galhau: Terminal rate expected by summer, focus on monitoring past hikes’ effects

ECB Governing Council member Francois Villeroy de Galhau reiterated that the central bank’s policy rate is expected to reach its peak “not later than by summer”. He hinted at the possibility of either rate hikes or pauses in the three upcoming Governing Council meetings, but advised against making assumptions about future policy decisions based on this.

“Our primary focus right now isn’t how much further we need to raise rates, but the extent of the impact of the decisions we’ve already made,” he said. He further suggested that the policy changes may take 1 to 2 years to fully manifest, possibly leaning towards the upper end of this range given the current cycle of tightening.

Villeroy de Galhau praised the recent deceleration in rate hikes from 50 basis points to 25, referring to the move as “wise and cautious.” He emphasized the need to closely monitor the effects of their past aggressive hikes and stated that “How long we maintain rates high is now more important than the precise terminal level.”

He concluded by affirming the ECB’s commitment to a data-driven approach, carefully assessing the inflation outlook and the effectiveness of monetary policy transmission on a meeting-by-meeting basis.