ECB’s Villeroy: rate hike signals strong confidence in European banks

PARIS (Reuters) – The European Central Bank’s decision to raise interest rates by half a point on Thursday reflects the central bank’s priority of fighting inflation and also signals strong confidence in the solidity of European banks, French ECB policymaker Francois Villeroy de Galhau said on Friday.

“French and European banks are very solid,” Villeroy, who is also governor of the French central bank, said on BFM business radio.

A rout in global markets triggered by last week’s collapse of Silicon Valley Bank (SVB) and made worse by doubts around the future of Switzerland’s Credit Suisse had prompted some to question whether the ECB would pause its rate-hiking cycle.

In line with its often-repeated guidance, the central bank for the 20 countries that share the euro lifted its deposit rate to 3% – the highest level since late 2008 – as inflation is seen overshooting its 2% target through 2025.

“I think we sent a signal of confidence that is strong and dual. It reflects both confidence in our anti-inflation strategy and confidence in the solidity of European and French banks,” Villeroy said.

While the ECB had “the tools to ensure the liquidity of banks”, Villeroy said it was unlikely it would have to use them as “European banks are not in the same situation as U.S. banks”.

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