The European Central Bank (ECB) will probably continue to raise interest rates beyond 2%, but “jumbo” rate hikes will not become a new habit, France’s central bank chief said in Tokyo, while also calling for international regulation of crypto assets.
The ECB has increased rates at its fastest pace on record, hiking them by a combined 200 basis points to 1.5% in just three months. Despite the rapid pace, markets still expect the bank to hike rates further to tame sharp, broad-based inflation.
“We are clearly approaching what I would call the ‘normalisation range’ which can be estimated at around 2%. We should reach this level by December,” French central bank governor, Francois Villeroy de Galhau, said in a speech at a financial conference in the Japanese capital on Tuesday.
“Beyond this level, we will probably continue to raise rates, but we may do so in a more flexible and possibly less rapid manner. Jumbo rate hikes will not become a new habit.”
Signs of peaking headline and core inflation in the United States were “good news” for everyone, he said, given that the world’s top economy had been at the forefront of the global inflation cycle.
Data released last week showed U.S. consumer prices rose less than expected in October, bringing the annual increase below 8% for the first time in eight months.
“U.S. monetary tightening has had strong spillovers on the rest of the world through the high level of the dollar,” the central banker said.
During a separate event at Tokyo’s Waseda University later in the day, Villeroy de Galhau indicated he hoped the collapse of crypto exchange FTX would be a “clear” accelerator for international regulation in the area.
“What happened in the last days is a reminder that we urgently need international regulation,” he said, noting that Group of 20 major economies previously reached agreement on the principles of regulation of stablecoins.
Villeroy de Galhau said stablecoins – cryptocurrencies with fixed exchange rate against a normal currency – bring innovation but also new risks of financial instability.