ECB’s Villeroy: Pace of Next Interest Rate Cuts to Be Guided by Inflation Outlook

7 June 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Friday said that the ECB would decide on further interest rate cuts according to the inflation outlook.

In a statement published on the website of the Banque de France, which he heads, Villeroy said, ‘We will adjust the precise pace of our next interest rate cuts, without haste or procrastination, over time as future outlook for disinflation is confirmed.’

The first interest rate cut by the ECB was a signal of confidence in a soft landing, notwithstanding the fluctuations in inflation, he said, adding that the lower borrowing costs would support economic activity.

‘As for monetary policy, although it has become less restrictive since yesterday, it will continue to bring down inflation with interest rates that are still significantly above the neutral rate’, he said. ‘It is by resolutely fighting against price increases, and thus fighting for purchasing power, that monetary policy makes its greatest contribution to supporting growth.’

The ECB’s efforts to restore price stability had been effective and ‘[t]he 2% target is therefore in sight’, he said, though he warned that vigilance was still required.

It was possible to see some moderation in labour market indicators published Friday, he said.

‘Indeed, the data published this morning show that the compensation per employee is still rising steadily, but that overall unit labour costs are continuing to decelerate and profit margins are contracting’, he said.