Markets see the ECB's 3% deposit rate peaking around 3.65% by the end of the third quarter, suggesting two 25-basis point moves are fully priced in and investors are split over a third hike. (Reporting by Balazs Koranyi Editing by Chris Reese)
Reuters Messaging: balazs.koranyi.thomsonreuters.com@reuters.net)) NEW YORK, April 11 (Reuters) - Euro zone inflation is at
risk of getting entrenched above 2% so the European Central Bank
will keep fighting excessive price growth, even as its policy
response is shifting gears, French central bank chief Francois
Villeroy de Galhau said.
The ECB has raised rates by a combined 350 basis points
since July and more increases are likely as price growth is
still too high and underlying price pressures, which filter out
volatile food and fuel prices, are still rising.
"We now face the risk of entrenched inflation, which lies in
the underlying or ‘core’ component," Villeroy said in New York
on Tuesday. "Inflation has become more widespread, and
potentially more persistent."
But Villeroy said monetary policy was most effective in
tackling underlying or core inflation and he expected price
growth back at around the ECB's 2% target by the end of 2024 or
the end of 2025.
Although the ECB raised rates by 50 basis points at each of
its past three meetings, markets are expecting just a 25 basis
point increase on May 4 as smaller steps may be more appropriate
as the bank is approaching its peak or terminal rate.
"We at the ECB are now moving from a 'sprint' to a
'long-distance race'," Villeroy said, adding the inflation
outlook, underlying inflation readings and the effectiveness of
policy transmission will be the key factors in the next
decisions.
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