The European Central Bank (ECB) must speed up the phasing out of its stimulus measures. Especially now that prices are rising too quickly and price increases are also widely spread. That said François Villeroy de Galhau, the boss of the central bank of France, is also a member of the Governing Council of the ECB.
Villeroy gave a speech at an economic conference in Paris. He pointed out that even a measure of core inflation, excluding the effect of rising food and energy prices, is also currently well above the ECB’s 2% target. It stood at 3.8 percent in May. He said the central bank meeting next week will be “decisive” in formulating a response.
“Inflation is not only too high but also too broad,” said Villeroy. “This requires a normalization of monetary policy. I say normalization and not tightening.” The French central banker did not comment further. Policymakers are preparing for the two-day meeting that will conclude on June 9.
Due to the war in Ukraine and its consequences on the European economy, policymakers at the ECB are under great pressure to do something about high inflation. An interest rate increase is obvious because a higher interest rate makes it more attractive to save money and not spend it right away. This can help bring inflation down.
ECB President Christine Lagarde recently announced that the way seems clear for a first-rate hike in July. It may then be followed by several interest rate steps so that the still negative interest rate at the central bank can come to an end.