Interest rates will “soon” reach a high point in the euro zone, before remaining on this “high plateau” for the time necessary for inflation to slow down, the Governor of the Banque de France said on Sunday. “We have passed the peak of inflation in France (…), and we will soon reach the high point on interest rates in the euro zone”, indicated François Villeroy de Galhau during the Economic Meetings of Aix-en-Provence. in Provence.
Consumer price inflation fell to 5.5% year on year in June in the euro zone, but it remains well above the 2% target that the European Central Bank (ECB) wants to reach in the future. horizon 2025. “It will not be a peak, but rather a high plateau on which we will have to remain long enough to ensure the full transmission of all the effects of monetary policy”, he said. precise.
In an attempt to stem inflation, the central bank has embarked on monetary tightening on an unprecedented scale for the past year. It has raised its key rates by 4 percentage points over the last eleven months, and raised its benchmark rate on deposits to 3.5%. ECB President Christine Lagarde has warned that the rate hike will continue in July. As a result of this monetary tightening, credit applications fall, with the effect of a drop in demand for goods and services, and a slowdown in prices. But also a brake on growth, which worries more and more politicians, as in Italy where the government fears that “the cure will prove more damaging than the disease”.
Economists, including Frenchman Olivier Blanchard, former chief economist of the International Monetary Fund (IMF), have also said they are in favor of raising the ECB’s inflation target from 2% to 3%, an idea firmly rejected by François Villeroy de Galhau, member of the board of governors of the institution. “It’s an example of a false good idea,” he said, because “immediately, lenders would ask for higher interest rates, of at least 1%”, to which would be added “a risk premium increased”. He unfolded the analogy with the 9th of the Tour de France scheduled for Sunday: if at the last moment, the organizers move the stage finish from the top to the bottom of the Puy de Dôme, “at that time they have lost all credibility for the rest of the competition.
