To fight against inflation, François Villeroy de Galhau on Sunday defended the strategy of a more restrictive monetary policy but with more “flexible” key rate increases from January.

For the head of the Banque de France, it is thus time for the European Central Bank to begin the “second half” of its monetary policy.

The ECB has sharply raised its key rates since July in order to fight against inflation which is reaching record highs in the euro zone: 10.6% in October.

The Governor of the Banque de France therefore estimated on LCI that at the ECB meeting “on December 15, we should end the first half, of normalization” of monetary policy after several years of exceptionally low rates, close to zero or even negative since 2016.

A “slower” rate of increases thereafter

"We will discuss around Christine Lagarde (the president of the ECB) and I think that the right measure would be to raise interest rates to reach around 2%, a more normal rate in view of past levels", he said. -he declares.

Currently, the main rate is 1.5%.

François Villeroy de Galhau has therefore positioned himself in favor of raising rates by 0.50 points at the end of the next meeting.

For him, this meeting will be “an inflection point, not a stopping point”.

He then imagines a "second half where the rate hikes will continue but at a slower and more flexible pace - let's say shorter passes", he explained, spinning the footballing metaphor.

The governor also mentioned the reduction of the balance sheet of the ECB, that is to say the reduction of asset purchases on the financial markets by the institution.

These "injections of cash into the economy" were greatly "increased in 2021" and then "stabilized in 2022".

“We will discuss on December 15 to reduce them (…), but it must be done cautiously and gradually”, according to the boss of the Banque de France.

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