ECB’s Villeroy pushes back on rate hike bets

FRANKFURT (Reuters) -European Central Bank policymaker Francois Villeroy de Galhau pushed back against market bets on an upcoming interest rate hike on Friday, saying one “shouldn’t rush to conclusions” about the timing of an ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB move.

Investors have brought forward their expectations for the first ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB rate increase in over a decade to July after President Christine Lagarde acknowledged mounting inflation risks at a policy meeting on Thursday.

Villeroy said the direction of travel was now clear but the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB will take a gradual approach and keep its options open at all times.

“While the direction of the journey is clear, one shouldn’t rush to conclusions about its calendar: it will remain gradual, state dependent, and open in each of its steps,” Villeroy, the Banque de France governor, said in a statement.

His Finnish counterpart, Olli Rehn, appeared less non-committal but also left the door open on the timing of the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB’s first increase since 2011.

“If there are no setbacks in the pandemic or the geopolitical situation, it would logical for the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB to hike its key interest rate at latest next year,” Rehn told newspaper Helsingin Sanomat in an interview.

Euro zone inflation rose to a new record high of 5.1% last month, defying expectations for a big drop and forcing the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB to finally admit that price growth is not as temporary and benign as it has long predicted.

Lagarde on Thursday opened the door a crack to an interest rate increase this year but said the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB would first end its bond purchases and only after that raise its rate on bank deposits, currently set at minus 0.5%.

Sources told Reuters the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB was now likely to bring forward the end of its Asset Purchase Programme, currently set for October at the earliest, at its March meeting and some policymakers wanted to act already on Thursday.

Speaking on Friday, Slovak central bank governor Peter ECB-POLICY-KAZIMIR-00b06d9b-4b99-46ce-a2aa-458d8eb2d993>Kazimir also pointed to a March move.

“The fact that, despite the surprises brought by December and January inflation numbers, we did not proceed to tightening, does not mean we will hesitate to react,” he said. “We will be wiser in March, we will have more data.”

But Villeroy stressed any decision would depend on how the economic and geopolitical situation develops, a likely reference to tensions between the West and Russia which have boosted oil prices – and inflation – in recent months.

While inflation is widely expected to come down by the end of the year, it was already felt by workers, who were demanding wage increases of 3% or more, according to an ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB survey of large companies. [L1N2UF0HB]

That is a key threshold for the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB, whose chief economist Philip Lane said last week 3% wage growth would be consistent with inflation hitting the central bank’s 2% goal, allowing for a typical increase in labour productivity of about 1%.

The ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB has said it will only raise rates once it sees inflation stabilising at 2%.

Economists surveyed by the central bank itself put price growth at 3% this year before it dips to 1.8% in 2023 and 1.9% in 2024, a survey showed on Friday.

(Reporting By Francesco Canepa; Additional reporting by Jan Lopatka in Prague and Anne KauranenEditing by Raissa Kasolowsky and Emelia Sithole-Matarise)

FRANKFURT (Reuters) -European Central Bank policymaker Francois Villeroy de Galhau pushed back against market bets on an upcoming interest rate hike on Friday, saying one “shouldn’t rush to conclusions” about the timing of an ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB move.

Investors have brought forward their expectations for the first ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB rate increase in over a decade to July after President Christine Lagarde acknowledged mounting inflation risks at a policy meeting on Thursday.

Villeroy said the direction of travel was now clear but the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB will take a gradual approach and keep its options open at all times.

“While the direction of the journey is clear, one shouldn’t rush to conclusions about its calendar: it will remain gradual, state dependent, and open in each of its steps,” Villeroy, the Banque de France governor, said in a statement.

His Finnish counterpart, Olli Rehn, appeared less non-committal but also left the door open on the timing of the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB’s first increase since 2011.

“If there are no setbacks in the pandemic or the geopolitical situation, it would logical for the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB to hike its key interest rate at latest next year,” Rehn told newspaper Helsingin Sanomat in an interview.

Euro zone inflation rose to a new record high of 5.1% last month, defying expectations for a big drop and forcing the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB to finally admit that price growth is not as temporary and benign as it has long predicted.

Lagarde on Thursday opened the door a crack to an interest rate increase this year but said the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB would first end its bond purchases and only after that raise its rate on bank deposits, currently set at minus 0.5%.

Sources told Reuters the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB was now likely to bring forward the end of its Asset Purchase Programme, currently set for October at the earliest, at its March meeting and some policymakers wanted to act already on Thursday.

Speaking on Friday, Slovak central bank governor Peter ECB-POLICY-KAZIMIR-00b06d9b-4b99-46ce-a2aa-458d8eb2d993>Kazimir also pointed to a March move.

“The fact that, despite the surprises brought by December and January inflation numbers, we did not proceed to tightening, does not mean we will hesitate to react,” he said. “We will be wiser in March, we will have more data.”

But Villeroy stressed any decision would depend on how the economic and geopolitical situation develops, a likely reference to tensions between the West and Russia which have boosted oil prices – and inflation – in recent months.

While inflation is widely expected to come down by the end of the year, it was already felt by workers, who were demanding wage increases of 3% or more, according to an ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB survey of large companies. [L1N2UF0HB]

That is a key threshold for the ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB, whose chief economist Philip Lane said last week 3% wage growth would be consistent with inflation hitting the central bank’s 2% goal, allowing for a typical increase in labour productivity of about 1%.

The ECB-POLICY-SOURCES-e4bab80d-7aeb-4e49-a29a-ce14e1595c6d>ECB has said it will only raise rates once it sees inflation stabilising at 2%.

Economists surveyed by the central bank itself put price growth at 3% this year before it dips to 1.8% in 2023 and 1.9% in 2024, a survey showed on Friday.

(Reporting By Francesco Canepa; Additional reporting by Jan Lopatka in Prague and Anne KauranenEditing by Raissa Kasolowsky and Emelia Sithole-Matarise)