ECB Insight: Doves on the Defensive as ECB Sentiment Shifts

25 July 2025

By David Barwick – FRANKFURT (Econostream) – In contrast to comments of European Central Bank Governing Council member Mārtiņš Kazāks published earlier Friday, subsequent interventions today by his French and Finnish counterparts – François Villeroy de Galhau and Olli Rehn – added little new insight into the current ECB policy outlook.

Neither Villeroy of the Banque de France nor Rehn of the Bank of Finland had any scheduled appearances or interviews today that could have presented an opportunity to shore up dwindling market expectations of a September cut in the wake of ECB President Christine Lagarde’s somewhat hawkish messaging on Thursday.

The statements they thus posted on their respective institutions’ websites read more like a rearguard action than a fresh policy intervention. The reversal of fortunes that has their authors suddenly on the defensive is palpable. Surprising the statements were not.

In a litany of talking points reminiscent of a laundry list, Villeroy avoided anything that could be construed as grounds not to cut rates. Risks to growth? Still pointing down. Inflation and wages? ‘Well under control’. Tariffs? Not inflationary. The euro? ‘Significant[ly] disinflationary’.

All this, he reasoned, made it essential to remain ‘completely open’ about coming rate decisions. ‘Agile pragmatism’ was more important than ever, he said.

Plus ça change, plus c'est la même chose – with Villeroy, after 24 July is before 24 July.

Rehn chose a more discursive format than his French colleague, but any difference with Villeroy ended there, as his attention was similarly limited to arguments supporting more easing.

Inflation was about to fall below target and ‘vigilance’ was needed to safeguard price stability, he said. Growth prospects were increasingly worrisome, and strong activity earlier in the year was mere frontloading to avoid tariffs and thus likely to prove transient.

In both his assessment of inflation and his take on growth, it was striking how Rehn wanted nothing to do with the more soothing – i.e. hawkish – messages conveyed the previous day by Lagarde, who had sounded distinctly more positive on the economy and confidently dismissed fears of undershooting.

It is only natural that some Council members still clearly favour cutting interest rates, and no surprise that Villeroy and Rehn figure in that group. As we have repeatedly observed going back about a year, they’ve consistently stood at the forefront of those advocating looser monetary policy.

They cannot be gratified to hear the new tone struck by their peers, and it is no wonder that in the face of the retreat of market easing expectations, they thought it important to mount a prompt defence of a September cut.

But in gauging the likelihood that yesterday’s pause will extend beyond 11 September, we never had any doubt where Villeroy and Rehn would stand, so – unlike Lagarde or Kazāks – their remarks offer no new clues to the evolving consensus. If anything, they underscore just how lonely the doves may soon become.