The European Central Bank would be “wise” to deliver another interest rate cut in September, French policymaker Francois Villeroy de Galhau said, warning there was a risk of undershooting its inflation target if it waits too long.
Inflation in the eurozone fell to its lowest level in three years in August, clocking in at 2.2 per cent this month, according to preliminary figures.
“Unfortunately, our growth remains too weak. The balance of risks still needs to be monitored in Europe,” Villeroy told French magazine Le Point in an interview released on August 30, adding: “It would be fair and wise to decide in favour of a new rate cut.”
Villeroy, who is also governor of the French central bank, said inflation would likely settle in line with the ECB’s 2 per cent target in the first half of next year in France and in the second half of 2025 in the broader euro zone.
But if the ECB waited to reach its 2 per cent inflation target to cut interest rates, it would act too late and then run the risk of undershooting, he added.
Villeroy also said that financial markets’ expectations that ECB rates would fall to 2 per cent-2.5 per cent next year currently appeared “reasonable” to him.
