ECB to cut rates as inflation concerns rise – Villeroy

The European Central Bank (ECB) is likely to cut interest rates on October 17, 2024, due to weak economic growth and the risk of inflation falling below its 2 per cent target, according to French Central Bank Chief François Villeroy de Galhau.

In an interview with La Repubblica, Villeroy acknowledged that while the ECB had previously focused on the risk of exceeding its inflation target, the current economic environment necessitates caution against undershooting it.

The ECB has already reduced rates twice this year from record highs, and markets are anticipating additional cuts in October and December as inflationary pressures ease more rapidly than expected.

Villeroy hinted at the possibility of further reductions next year, aiming to reach a “neutral” rate—where monetary policy neither stimulates nor slows growth—by 2025. He noted that if inflation stabilises at 2 per cent while growth remains sluggish, there would be little justification for maintaining restrictive monetary policy.

Despite recent surges in oil prices due to geopolitical tensions in the Middle East, Villeroy emphasised that the ECB typically overlooks temporary shocks unless they affect underlying price stability. He concluded that while progress is being made in the fight against inflation, vigilance is still required.

Attribution: Reuters

Subediting: M. S. Salama