ECB's Villeroy: 2% Deposit Rate by Summer, Boosting Economic Recovery

The European Central Bank (ECB) has been on a tightening path since July 2022, raising interest rates to combat inflation. In a recent speech, ECB policymaker François Villeroy de Galhau reaffirmed that deposit rates could reach 2% by this summer, signaling a continued commitment to controlling inflation and supporting economic recovery.

The ECB's projected timeline for reaching the 2% deposit rate aligns with its inflation targets and economic growth forecasts. The ECB's staff projections indicate that inflation is set to return to the Governing Council's 2% medium-term target in the course of this year (2023). The ECB's policy rate adjustments are aimed at ensuring that inflation stabilizes sustainably at this target.

The ECB's deposit rate is the main instrument for steering the monetary policy stance in the current conditions of ample excess liquidity. A 2% deposit rate would increase borrowing costs for businesses and consumers, making new borrowing more expensive for firms and households. This increase in borrowing costs could lead to a decrease in investment and consumer spending, potentially slowing down economic growth.

However, the ECB expects that rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time. The ECB's staff projections for economic growth in the euro area are as follows:

* 2023: 0.7% (previously 0.9%)
* 2024: 1.7% (previously 1.9%)
* 2025: 1.8% (previously 1.7%)

The ECB's policy rate adjustments are intended to support a pick-up in demand over time, while also ensuring that inflation returns to the 2% target. The ECB's projected timeline for reaching the 2% deposit rate is consistent with its inflation targets and economic growth forecasts, as it aims to balance the need to control inflation with the need to support economic growth.



In conclusion, ECB policymaker François Villeroy de Galhau's reaffirmation that deposit rates could reach 2% by this summer signals the ECB's commitment to controlling inflation and supporting economic recovery. The ECB's projected timeline for reaching the 2% deposit rate aligns with its inflation targets and economic growth forecasts, aiming to balance the need to control inflation with the need to support economic growth.