ECB’s Villeroy: Must Be Equally Attentive to Risks of Undershooting and Overshooting Target

13 September 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Friday said that the ECB had to be aware of the risks of undershooting its price stability target.

In a speech at the Eurofi Financial Forum in Budapest, the text of which was posted on the website of the Banque de France, which he heads, Villeroy said, ‘[T]he direction of the journey is clear – we should continue to reduce gradually and as appropriate the degree of restriction of our monetary policy. But the pace has to be highly pragmatic: we are not pre-committing to any particular rate path, and we keep our full optionality for our next meetings.’

The Governing Council's latest decision to reduce interest rates was unanimous and based on strong economic evidence, he said.

‘Inflation evolves according to our forecast, which we didn’t change in any decimal (the first time since almost 20 quarters): we are at 2.2 % in August, and we should reach a lasting 2% by the second half of next year’, he said.

In the context of weak activity and high uncertainty, the ECB's decision was also a result of  ‘sound risk management’, he said.

The ECB's price stability mandate was symmetrical around the 2% inflation target, he reminded.

‘[W]e must be attentive to the risk of undershooting our target as much as to the risk of overshooting it’, he warned.