French central bank chief cautions against increasing ECB inflation goal.

AIX-EN-PROVENCE, France (Reuters) –

France’s Central Bank Head Pushes Back Against Proposal to Raise ECB’s Inflation Target

France’s central bank head, Francois Villeroy de Galhau, has responded to suggestions from French economists to increase the European Central Bank’s (ECB) inflation target of 2%. Villeroy, who sits on the ECB’s governing council, emphasized that interest rate hikes are nearing their peak and that rates will remain elevated for a sufficient period to impact the economy.

The aim is to bring inflation down to the 2% target by 2025, Villeroy said at an economics conference in the southern French city of Aix-en-Province.

Former IMF chief economist, Frenchman Olivier Blanchard, has long called for a higher inflation target than the 2% shared by most major central banks, arguing that the increased flexibility that would provide would outweigh the costs.

Veteran French economist Patrick Artus also called for a higher target at the conference on Saturday and French Finance Minister Bruno Le Maire said that if economists were opening the debate there should be “no taboos about transgression”.

In response, Villeroy said that a higher inflation target was a “false good idea” and would lead to higher rather than lower borrowing costs.

“If we announced our inflation target is no longer 2% but 3%, lenders would immediately demand higher interest rates, at least 1% (more)” in anticipation of higher inflation and uncertainty Villeroy said.

Bank of England Governor Andrew Bailey said on the same panel that the 2% target was a good balance because it is low enough that people do not have to take inflation into account in their everyday economic decisions, while zero would be too low to allow for relative changes in prices.

“If we change it, we will unpick not only that definition, we will unpick expectations,” he said.

(Reporting by Leigh Thomas, additional reporting by William Schomberg in London; Editing by Elaine Hardcastle and Alexander Smith)

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