Villeroy Reveals: ECB Willing to Lower Interest Rates on a Large Scale?


The European Central Bank (ECB) has plenty of room for interest rate cuts and current market expectations for easing in the long term are justified, ECB policymaker Francois Villeroy de Galhau said in a press interview on Monday.

After the first rate reduction next month which Villeroy described as "an agreement that has been reached". Debate among ECB policymakers remains open over how quickly and to what extent to continue easing policy thereafter.

Villeroy, who is also French central bank governor, has repeatedly expressed the need for the ECB to adopt a "maximum capacity" approach after June. In an interview with German newspaper Boersen Zeitung, he rejected suggestions that the ECB should only cut rates once every quarter when its economic forecasts are updated, which would exclude a move in July.

"I am not saying that we should commit in July, but it is best that we maintain our freedom in determining the timing and speed of the interest rate reduction," added Villeroy.

Looking at the debate over the short term, market analysts polled by the ECB expect it to cut its key rate over time to 2%, which Villeroy described as "unreasonable". "This does not mean that we should reach this rate, but with a deposit facility rate of 4%, we have significant room for rate reduction," he added.

A rise in the European zone's main wage indicator last week pushed some uncertainty into the outlook, but some policymakers were quick to stress that the data should not be over-interpreted. "For me, service inflation is more important than wages," said Villeroy.