There is no reason for the European Central Bank to increase rates between now and the end of 2022 as euro zone inflation is expected to fall back below the ECB’s 2% target, Bank of France governor Francois Villeroy de Galhau said on Tuesday.

He also played down concerns that problems at China Evergrande Group, which faces a liquidity crisis, could have a broader impact, saying: “There will be no contagion outside China. This is a serious problem for Chinese authorities.”

Villeroy, who is a member of the ECB’s policy-setting governing council, told France Info radio that overall inflation in the 19-country euro zone should be back below 2% by the end of next year.

ECB President Christine Lagarde said last week that the central bank still saw Europe’s inflation upswing as temporary and that there were no signs yet that the recent surge was becoming embedded in wages.

“Today, the overall inflation is a little bit above 2%. But … I clearly believe that overall inflation will come back below 2% by the end of next year,” Villeroy told France Info.

“So today there is no reason, for example, for the European Central Bank to raise interest rates next year.”

Asked whether the liquidity crisis at Evergrande could lead to global contagion as the 2008 collapse of Lehman Brothers did, Villeroy said: “The main consequence is likely to be some slowdown in Chinese growth.”

Property developer Evergrande, which has $300 billion of debt, has missed a series of bond payments, roiling global markets.
Source: Reuters (Reporting by Myriam Rivet, Sudip Kar-Gupta and Matthieu Protard; Editing by Andrew Heavens and Catherine Evans)