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ECB's Villeroy sees inflation peak in first half of year, no risk of recession

The Paris Europlace International Financial Forum in Paris

By Marine Strauss

Paris (Reuters) -Inflation in France is likely to reach its peak in the first half of the year and, barring a major world event, the risk of recession could be ruled out, French European Central Bank policymaker Francois Villeroy de Galhau said on Wednesday.

Villeroy, who is also governor of the French central bank, said inflation should be back to around 2%, the ECB's target, by the end of 2024 to the end of 2025.

In an effort to steer record inflation towards its 2% target, the ECB has hiked rates by a combined 300 basis points to 2.5% since last July and promised to deliver a further 50 basis-point increase in March.

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"After the "sprint" of monetary normalisation that began in July 2022, we are now entering a new phase of monetary policy that is more comparable to a long-distance race," Villeroy told a hearing of the French parliament's finance committee.

"It will be longer - we must not claim victory too quickly - but more gradual and more pragmatic in the pace of the next hikes," Villeroy told French lawmakers.

While it is too early to tell when rates would reach their peak, Villeroy said it would be "desirable" by summer, at the latest by September.

The Bank of France will slightly raise its growth forecast for the French economy for 2023 on March 20, from an increase of 0.3% forecast in December, before recovering in 2024.

France's public debt ratio is 20 percentage points higher than that of the euro area as a whole - 113% of GDP against 93% in Q3 2022 - and, unlike in major countries of the euro area, is not decreasing.

(Reporting by Marine StraussEditing by Raissa Kasolowsky and Sharon Singleton)