The European Central Bank's top three shareholders charted different paths for interest rates on Wednesday, in a preview of the difficult debate awaiting the ECB in the coming weeks.
Money markets were expecting the ECB deposit rate to peak at 4% in December, from 2.5% at present, pricing in another 50-basis point increase in May and then a steady grind higher in the remainder of the year.
Banque de France governor Francois Villeroy de Galhau, a centrist, was more cautious, saying the ECB should now become "more gradual" in raising rates and wrap up by September at the latest. "We must not claim victory too quickly - but more gradual and more pragmatic in the pace of the next hikes," Villeroy told French lawmakers.Ignazio Visco, a policy dove who heads the Bank of Italy, echoed Villeroy's call for more gradual hikes but ventured further by saying that inflation was showing early signs of decelerating.
"Data on market- and survey-based inflation expectations – including their recent decline at short horizons and their decreasing profile ‒ and the marked deceleration of prices on a three-month annualised basis may call into question the persistence of inflation at high levels in the euro area, reinforcing the arguments in favour of gradual monetary normalisation," he told an audience in Frankfurt.
The ECB has raised rates by 300 basis points since July in a bid to bring inflation, which hit double digits late last year, back to its 2% target.
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