ECB’s Villeroy: Governing Council in Broad Agreement to Cut Rates in Spring

12 March 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Tuesday said that there was a common understanding within the Governing Council on reducing interest rates during the spring.

In an interview with French daily Le Figaro, Villeroy, who heads the Banque de France, said, ‘Since our Governing Council last week, there has been very broad agreement for a rate cut in the spring... knowing that the spring lasts until June 21.’

When reducing interest rates, two equivalent risks, which required gradualism rather than a ‘wait-and-see’ approach, needed to be considered, he said. 

‘The first would be the haste in lowering rates, which would let inflation start again’, he said. ‘The second would, conversely, be remaining tight, which would weigh too much on activity: this risk is now at least equal to the first.’

Asked about the pace of interest rate cuts, he said that the ECB should follow a pragmatic approach ‘without tying our hands with past excesses of forward guidance.’

‘We have significant room for manoeuvre before returning to an overly accommodating policy: we will have to aim for the right rates, without going back to the zero or ultralow rates of the previous era’, he said.

Monetary policy was currently winning the fight against inflation, he said. ‘We have, with the ECB and Christine Lagarde, taken our responsibility by increasing rates, and it is working.’

In France, growth forecasts were revised upwards and a recession was no longer anticipated, Villeroy said.

‘The recovery will be fueled by disinflation, which will support purchasing power and therefore consumption’, he said.