The European Central Bank (ECB) has ample room for rate cuts, and current market expectations for easing in the long term are reasonable, according to ECB policymaker Francois Villeroy de Galhau in a newspaper interview on Monday.
Villeroy stated that a first-rate cut in the following month is a “done deal,” but there is ongoing debate among ECB policymakers about the speed and extent of further easing.
As the governor of the French central bank, Villeroy has consistently advocated for the ECB to adopt a strategy of “maximum optionality” after June.
In an interview with the German newspaper Boersen Zeitung, he opposed suggestions that the ECB should only cut rates once a quarter when updating its economic forecasts, which would rule out a July move.
“I’m not saying that we should commit to a July cut already, but let’s maintain our flexibility regarding the timing and pace,” Villeroy added.
Amid the short-term debate, market analysts surveyed regularly by the ECB anticipate that the main rate will eventually be cut to 2%, a level which Villeroy described as “not unreasonable.”
“This doesn’t mean that we should necessarily reach this rate, but with a deposit facility rate of 4%, we have significant room for rate cuts,” he added.
Last week, an increase in a key eurozone wage indicator introduced some uncertainty into the outlook, but several policymakers were quick to emphasize that the data should be viewed in a balanced manner
