DAVOS, Switzerland (Reuters) – The European Central Bank has yet to win its fight against sky high inflation so its guidance for big rate hikes in the months ahead remains valid, French central bank chief Francois Villeroy de Galhau said on Wednesday.
The ECB has raised rates by 2.5 percentage points since July and flagged a 50 basis point move in February and possibly in March, all in the hope of getting inflation back to 2% by sometime in 2025 from levels near 10% now.
“We must stay the course in our battle against inflation; it’s not yet won,” Villeroy told a World Economic Forum (WEF) annual meeting panel in Davos.
His comments come after a Bloomberg News report that some policymaker are contemplating a smaller hike in March.
Villeroy appeared to dismiss this, saying that ECB President Christine Lagarde’s guidance for a 50 basis point move in February and possibly at subsequent meetings remain valid.
Headline inflation could peak in the first half of 2023, followed by underlying price growth, and overall inflation could fall to the ECB’s 2% target by late 2024 or early 2025, he said.
Villeroy was also relatively optimistic on growth, arguing that a recession, part of the ECB’s baseline forecast, could be avoided given recent indicators.
“If I look at the situation from Europe – it’s probably the same in the U.S., more or less – activity is more resilient than expected, and we should avoid a recession this year, which I wouldn’t have (expected) three months ago,” Villeroy added.
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(Reporting by Balazs Koranyi; Editing by Andrew Heavens and Alexander Smith)
