ECB’s Villeroy Says It’s Reasonable to Assume Rates Near Bottom

(Bloomberg) --

European Central Bank policy maker Francois Villeroy de Galhau suggested that euro-zone interest rates are unlikely to fall much further, though there’s also little chance they’ll rise soon unless governments such as Germany spend more.

“The markets anticipate, reasonably in my view, that short-term rates are close to bottoming out,” the French central bank governor said at an event in Frankfurt. But “these low short-term rates must and will remain in place -- it would undeniably be a mistake to raise ECB rates now.”

Villeroy said a number of euro area countries including Germany meet conditions where public spending would have a bigger impact -- including low levels of public debt and monetary policy being close to the lower bound. His remarks add to a chorus of calls for government spending.

The message isn’t yet resonating in Germany though. Earlier Thursday, the nation unexpectedly reported a small third-quarter economic expansion, narrowly dodging its first recession in six years. At a Bloomberg News event, Finance Minister Olaf Scholz repeated his line that the economy is not in crisis, and that there’s no need for stimulus now.

Speaking at a separate event in London, Vice President Luis de Guindos was careful to stress that central banks still have policy options left, but also repeated his plea for other policy spheres to act.

“We have not reached the limits -- we have ammunition,” he said. But “we cannot be the only game in town. There are other actors who need to step in, who need to start to play their roles.”

To contact the reporters on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net;Yuko Takeo in Tokyo at ytakeo2@bloomberg.net;Jill Ward in London at jward98@bloomberg.net

To contact the editor responsible for this story: Paul Gordon at pgordon6@bloomberg.net

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