ECB‘s Villeroy: Time Coming to Ease Monetary Restriction in Euro Area

16 April 2024

By Aurėja Bobelytė – VILNIUS (Econostream) – The time to ease monetary policy in the euro area is coming, European Central Bank Governing Council member François Villeroy de Galhau said on Tuesday.

In a webinar organised by the Economic Club of New York, Villeroy, who heads the Banque de France, said, ‘The time for the turn of the screw on euro area monetary conditions is over. Now the time is coming in Europe to start to gradually release a screw and lower the pressure’.

Favouring a policy of pragmatic gradualism, Villeroy said that interest rates should be cut several times this and next year by a data-based, meeting-by-meeting approach.

‘That said, we will closely monitor the geopolitical developments in the Middle East, and the possible spillovers on energy prices. If ever these consequences happen to be affecting underlying inflation, we would have ample room after the first rate cut to adjust the pace and the destination if needed’, he said.

Monetary policy would remain in restrictive territory for a while in any case, he added.

‘[T]he nominal neutral rate adjusted for 2% inflation could be between 2% and 2.5%’, he said. ‘This is not necessarily the target for the current rate cutting phase, but it simply shows that we have significantly waited to lower our rates before exiting restrictive territory.’