ECB interest rates set to peak by summer, says policymaker

European Central Bank has been hiking rates since July and is working to steer price growth towards its 2% target

The ECB raised rates for a fourth time last year and pledged further hikes. Picture: Bloomberg

The European Central Bank (ECB) interest rates should reach a peak by this summer and hikes should not be "too mechanical", French ECB policymaker Francois Villeroy de Galhau said today.

The ECB has been hiking rates since July and is working to steer price growth towards its 2% target.

"It would be desirable to reach the right 'terminal rate' by next summer, but it is too early to say at what level," Mr Villeroy, who is also governor of the French central bank, said in a new year's address.

We need to be pragmatic and guided by observed data, including underlying inflation, without fetishism for increases that are too mechanical.

The ECB would then be prepared to remain at the terminal rate as long as necessary, Mr Villeroy said.

The ECB raised interest rates for a fourth time last year and pledged further hikes, laying out plans to drain cash from the financial system as part of its fight against runaway inflation.

The ECB has been raising rates at an unprecedented pace to rein in prices that have soared since economies reopened after the Covid-19 pandemic, driven by supply bottlenecks and then surging energy costs following Russia's invasion of Ukraine on February 25, 2022.

• Additional reporting by the Irish Examiner