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ECB could reach neutral rate by year end - Villeroy

·1-min read

PARIS (Reuters) -ECB interest rates could reach the level where they neither stimulate nor slow the economy by the end of the year, French ECB policymaker Francois Villeroy de Galhau said on Wednesday.

Villeroy, who is also head of the French central bank, said that while it was too early to say at what level the policy normalisation cycle would end, the neutral rate - sometimes called R* by economists - shed some light on the way forward.

"I believe that in the euro area R* can be estimated as below or close to 2% in nominal terms, and we could be there by the end of the year," Villeroy told the International Monetary Fund in Washington.

"Until then, we definitely have to act, in a determined but orderly way."

The ECB raised rates by an unprecedented 75 basis points on Thursday just weeks after a 50 basis point move and promised several more steps over the coming months as euro zone inflation was at its highest rate in nearly a half a century and at risk of becoming entrenched.

Villeroy added that the ECB would only shift from normalising interest rates to tightening beyond the neutral rate if that proved to be necessary.

(Reporting by Leigh ThomasEditing by Tomasz Janowski and Bernadette Baum)