ECB’s Villeroy sees summer rate peak, no cut this year

© Reuters. FILE PHOTO: Francois Villeroy de Galhau, Governor of Banque de France, attends the Paris Europlace International Financial Forum in Paris, France, July 12, 2022. REUTERS/Benoit Tessier

PARIS (Reuters) -The European Central Bank interest rates are likely to reach their peak over the summer and a rate cut this year is out of the question, French ECB policymaker Francois Villeroy de Galhau said on Friday.

In an effort to steer record inflation towards its 2% target, the ECB has hiked rates by a combined 300 basis points to 2.5% since last July and promised to deliver a further 50 basis point increase in March.

In a speech to financial analysts, Villeroy, who is also governor of the French central bank, said that rates would then “probably” reach their peak in the summer, at the latest by September.

Markets took the ECB’s February policy statement as a signal that rates could peak at a lower level than earlier thought and investors quickly priced out a 25 basis point rate hike.

Subsequent pushback by a plethora of policymakers reversed market moves, however, and the terminal rate is now seen around 3.75%, suggesting another 125 basis points of rate hikes, including the 50 basis point move in March.

Villeroy said that how long interest rates are kept at the peak were also key, adding that they would be kept high as long as necessary to steer inflation back towards the ECB’s 2% target.

He said that the question of when rate cuts could come lay further in the future and was “surely not for this year”. He added that it would depend on not only on overall inflation coming down, but also underlying inflation, which excludes volatile items like energy prices.