ECB’s Villeroy Says Risk of Undershooting Inflation Target Now as Great as Overshoot
The eurozone’s central bank Thursday lowered its key interest rate, marking the first back-to-back cut in borrowing costs since 2011
The risk that eurozone inflation will fall below the European Central Bank’s target is now as great as the risk that it will exceed it, the governor of the Bank of France said Friday.
The eurozone’s central bank Thursday lowered its key interest rate, marking the first back-to-back cut in borrowing costs since 2011 as the outlook for the economy weakens.
In a statement, François Villeroy de Galhau said that would not be the last rate cut.
“The risk of sustainably missing our target by going down now exists as much as that of exceeding it,” he said. “We should continue to reduce the restrictiveness of our monetary policy as appropriate.”
Villeroy said eurozone inflation is set to reach the ECB’s 2% target sustainable “earlier than expected in 2025” while there is no clear sign of a pickup in economic growth.
“The persistent moderation of private investment and consumption, with in particular the recent rise in household savings rates, justifies this new drop in interest rates,” he said.
The ECB has now lowered its key rate three times since June, and by a quarter of a percentage point in each of those steps. But Villeroy indicated that larger moves are possible.
“The pace must be one of agile pragmatism: in a highly uncertain international environment, we retain full optionality for our upcoming meetings,” he said.