Data-Driven ECB Chief de Galhau Indicates Interest Rate Path Uncertain Despite Strong Inflation Progress

DAVOS, Switzerland – The European Central Bank (ECB) is not driven by the calendar but rather by the data, according to Francois Villeroy de Galhau, the governor of the Bank of France. Speaking at a panel discussion during the World Economic Forum in Davos, de Galhau emphasized that it was too early to declare victory on inflation and that interest rate tightening has been more successful than expected. He also noted that the global economy appears to be experiencing a “soft landing.”

In another session at Davos, Mario Centeno, the governor of Portugal’s central bank, highlighted the positive progress of inflation in the euro zone. Centeno stressed the need for the ECB to remain credible and data-dependent in its decision-making. The central bank has successfully anchored expectations for inflation at 2% in the medium term.

Meanwhile, global leaders gathered at Davos to discuss “The High Rate Reality.” The panel, moderated by CNBC anchor Steve Sedgwick, featured Adena Friedman, CEO of Nasdaq; Gita Gopinath, the first deputy managing director of the International Monetary Fund; Chuck Robbins, chair and CEO of Cisco; and Francois Villeroy de Galhau. Topics of discussion included the possibility of high interest rates becoming the new normal and its implications for markets.

The ECB’s recent stance on interest rate cuts has surprised some market participants, with Governing Council member Robert Holzmann suggesting that rate cuts may not occur this year. Headline inflation in the euro zone rose to 2.9% in December, exceeding the ECB’s target of 2%.

The discussions at the World Economic Forum in Davos have shed light on the cautious yet optimistic approach taken by European central bank officials towards inflation and interest rates. While progress has been made in anchoring inflation expectations, central bankers remain data-dependent in their decisions. The possibility of high interest rates becoming a long-term phenomenon is also being considered, raising questions about the future of global markets.

Overall, the discussions in Davos have offered valuable insights into the current economic landscape and the challenges faced by central banks in managing inflation and interest rates. The emphasis on data-driven decision-making reflects a cautious approach to ensure stability and credibility in the global economy.