AIX-EN-PROVENCE, France (Reuters) – French Central Bank President Francois Villeroy de Galhau on Sunday rejected a suggestion by some French economists to raise the European Central Bank’s inflation target of 2% ( ECB).
Villeroy, who sits on the ECB’s governing council, also said his interest rate hikes were about to plateau and rates would be kept high long enough for the impact to trickle down to the economy. ‘economy.
The aim is to bring inflation back to the 2% target by 2025, Villeroy told an economic conference in Aix-en-Province, southern France.
The IMF’s former chief economist, France’s Olivier Blanchard, has long called for an inflation target higher than the 2% shared by most major central banks, arguing that the increased flexibility that would result would outweigh the costs.
Veteran French economist Patrick Artus also called for a higher target at Saturday’s conference and French Finance Minister Bruno Le Maire said that if economists open the debate there should be “no taboos on the transgression”.
In response, Villeroy said a higher inflation target was a “false good idea” and would lead to higher borrowing costs rather than a decline.
“If we announced that our inflation target is no longer 2% but 3%, lenders would immediately demand higher interest rates, at least 1% (more)” in anticipation of higher inflation and uncertainty, Villeroy said.
Bank of England Governor Andrew Bailey said on the same panel that the 2% target was a good balance because it’s low enough that people don’t have to take inflation into account in their day-to-day economic decisions, while zero would be too low to allow relative price changes.
“If we change it, not only will we eliminate that definition, we’ll eliminate expectations,” he said.
(Reporting by Leigh Thomas, additional reporting by William Schomberg in London; Editing by Elaine Hardcastle and Alexander Smith)