ECB’s Villeroy: Barring Surprises, Next Move Will Be to Cut, Likely in 2024

16 January 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Tuesday said that the ECB’s next monetary policy move would be to reduce interest rates, probably this year, provided there were no surprises.

In a panel discussion during the Annual Meeting of the World Economic Forum in Davos, Switzerland, Villeroy, who heads the Banque de France, said, ‘If I think in nominal terms, obviously, they [interest rates] shouldn’t be higher than today, and barring major surprises – we look at the Middle East –, our next move will be a cut, probably this year, I will not comment on the season.’

Although ‘more successful than what we expected in Davos, say, one year ago’, the fight against inflation was not over yet and it was not the moment to declare victory, he said.

‘[I]nterest rate tightening has been quite successful’, he said. ‘What we can see on both sides of the Atlantic is something like a soft landing so far.’

The question of when interest rates would be cut was not relevant, he said, ‘because we are not calendar-driven, we are data-driven, let me stress it strongly.’

‘Our compass is inflation, obviously, price stability, it’s not corporate valuation or the level of the stock exchange market’, he said.

To make such decisions, the ECB looked at current and future data, including its own forecasts and inflation expectations, he said.

Transmission of monetary policy to financing conditions was ‘more or less over’, he said, while the transmission of financing conditions to the real economy was more difficult to assess.

‘[B]ut we have the feeling that the transmission of this monetary cycle is at least as strong and as quick than in the past’, he said.

The new fiscal policy framework was ‘good news’ and the remaining question now was whether it would be implemented, Villeroy said, adding ‘I strongly hope so, including for my own country.’