ECB interest rates could be back in positive territory by year’s end, the head of the French central bank said Friday, as soaring inflation puts pressure on policymakers.
The European Central Bank has long held its interest rates at historic lows, including a negative bank deposit rate that means lenders pay to park excess cash at the Frankfurt-based institution.
Record inflation in the eurozone has increased calls for the ECB to draw a line under its stimulus and follow other central banks towards interest rate hikes.
In a speech in Paris, Francois Villeroy de Galhau, president of France’s central bank and a member of the ECB’s governing council, said an end to negative rates would be “reasonable” by the end of this year.
“Barring unforeseen new shocks, I would think it reasonable to have entered positive territory by the end of this year,” he said.
Any hike would be the ECB’s first in over a decade and would lift rates from their current low levels.
But pulling the trigger too soon risks hurting growth at a sensitive time for the European economy because of the war in Ukraine.
ECB chief Christine Lagarde has said that she sees “a strong likelihood” that the bank will hike rates before 2022 ends, if inflation in the eurozone doesn’t abate.
She also said the bank would likely end its asset purchase program meant to support the economy during the coronavirus pandemic “in the course of the third quarter with a high probability that it will be early in the quarter.”