ECB’s Villeroy: It Would Be ‘Fair and Wise’ to Cut Interest Rates in September

30 August 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Friday said that an interest rate cut would be the right decision for the Governing Council to make at its September meeting to counter risks to economic growth.

In an interview with French weekly business magazine Le Point, Villeroy, who heads the Banque de France, said ‘Unfortunately, our growth remains weaker [than in the United States]. The balance of risks is therefore even more important to monitor in Europe. In my view, our Governing Council meeting on 12 September should act accordingly: it would be fair and wise to decide on a further rate cut.’

With progress in disinflation, there had been a shift in the risks, he said.

‘Previously, the main danger was that inflation was too high’, he said. ‘Today, with the progress we have seen, we must also watch out for the opposite risk, that of not having enough growth and therefore ultimately inflation that is too low.’

The battle against inflation had not been won, but victory was on the horizon, he said.

‘[W]e have not yet reached our 2% inflation target, but we will very probably be there in the first half of next year for France and in the second half for the Eurozone’, Villeroy said. ‘If we waited until we were actually at 2% before cutting rates, we would be acting too late and running the risk of subsequently falling below our target.’

The ECB’s inflation target was symmetrical, meaning that ‘missing it from the bottom’ was as undesirable as missing it from above 2%, he said.

Current market expectations for interest rates in 2025 were reasonable, he said.

‘I advocate an active and pragmatic gradualism, in other words, guided by the data, the immediate data on actual inflation, but also the anticipated data on forecasts’, he said. ‘Market expectations are for interest rates in the Eurozone to fall to between 2% and 2.5% next year. From today's perspective, this seems reasonable, but it is not a forecast.’

Inflation should be more volatile in the coming years due to the frequency of shocks and uncertainty, he said.