ECB’s Villeroy: Rate Cuts Will Occur ‘in Due Time’

23 November 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Thursday said that interest rate cuts would come but that rates would first have to stay high for a while.

In an interview with French regional daily Le Républicain Lorraine, Villeroy, who heads the Banque de France, said that to treat the ‘disease’ of inflation, it was ‘necessary to combine the dose and the duration: regarding the dose, unless there is another shock, it is over, there will be no further increase.’

‘On the other hand, it takes time for the remedy to work: the cut in rates will come in due time’, he said.

Although the situation in the Middle East had the potential to impact the price of oil, ‘it is clear, for the moment, that market reactions remain measured: we are today around the price level of last October 7’, he noted.

In contrast to the Russian invasion of Ukraine, the conflict in the Middle East was ‘not accompanied by a generalised shock on the prices of other energies or even the raw materials that our economy needs’, he observed.

‘For this reason, we maintain our forecast for inflation to return to around 2% by 2025’, he said. ‘And we anticipate a slowdown in growth but not a recession.’

Some euro area countries would be more subject to economic slowdown than others, he said. ‘But we should escape the dark scenario feared a year ago’, he added.