Since the European Central Bank embarked on the path of monetary tightening, it has introduced 10 consecutive hikes and brought the rate to a record high of 4%. Now some ECB officials are sounding the alarm and warning the central bank against further rate increases. Thus, Francois Villeroy de Galhau advocates for an end to aggressive monetary strategies. According to him, “the risk of doing too much - and possibly triggering a recession - and the risk of doing too little were now symmetrically balanced after the string of rate hikes.” Commenting on the current rate levels, the ECB official highlighted that they were already high enough to curb inflation. “Testing until it breaks is not a sensible way to calibrate monetary policy," de Galhau said. The official believes that the central bank should instead focus on the persistence of the current policy rather than on constant rate increases. In other words, the policymaker insists on focusing on duration rather than on rate levels. He further shared that the ECB’s growing confidence in the ability to bring inflation back to the target level of 2% by 2025 should allow them to focus on preventing a hard landing for the EU economy. Notably, the ECB forecasts inflation to remain above 3% next year and sees it below 2% only in the final quarter of 2025.
