FRANKFURT (Reuters) – European Central Bank interest rates are close to bottoming out but low rates must stay and raising them now, as advocated by some, would be a mistake, French central bank Governor Francois Villeroy de Galhau said on Thursday.
With euro zone inflation slowing despite years of unprecedented stimulus, the ECB unveiled even more support in September, hoping to boost growth and ultimately prices after having undershot its target since 2013.
“Markets anticipate, reasonably in my view, that short-term rates are close to bottoming out,” Villeroy said in Frankfurt. “These low short-term rates must and will remain in place: it would undeniably be a mistake to raise ECB rates now.”
But Villeroy added that the ECB needs to better define its inflation target and should use its upcoming policy review to address this issue.
The ECB targets inflation at close to, but below, 2 percent and recently emphasized that there was symmetry around this target. However, symmetry is not precisely defined and different interpretations have prevailed in markets, potentially misleading some.
“We should focus on two issues: the first is clarifying the definition of the ECB’s inflation target, and above all sharing it better with economic agents – businesses and households,” Villeroy said.”
“The second issue is limiting the negative effects of low rates on financial stability, and in particular on banks and insurers,” Villeroy added.
Although the ECB has yet to formally launch its review, Christine Lagarde, who took over from Mario Draghi as ECB boss two weeks ago, made this a priority of her presidency.
(Reporting by Francesco Canepa and Frank Siebelt; Writing by Balazs Koranyi; Editing by Toby Chopra)