Global: ECB’s Confidence Grows in Inflation Fight, Villeroy Indicates Rate Cut Likely

ECB's Confidence Grows in Inflation Fight, Villeroy Indicates Rate Cut Likely
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According to European Central Bank (ECB) policymaker Francois Villeroy de Galhau, the ECB is becoming increasingly confident in its efforts to combat inflation, suggesting that an interest rate cut in June is highly probable.

While the ECB kept rates at a record high last week, it hinted at the possibility of reducing them as early as June. This decision comes as the United States grapples with persistently high inflation, which may delay similar actions by the Federal Reserve.

Villeroy expressed his views to the French JDD magazine, stating, “Unless there are unexpected developments, we are likely to implement the first rate cut during our June meeting. We are gaining more and more confidence in our ability to control inflation.”

Highlighting the effectiveness of interest rates in combating inflation, Villeroy noted, “We had to raise the rate to 4%, but it remains lower than in the United States, where it stands at 5.5%.”

Villeroy, who also serves as the governor of the French central bank, is part of a growing faction within the ECB advocating for rate reductions. Last month, he warned that if inflation remained below the ECB’s 2% target for an extended period, more aggressive rate cuts might be necessary.

Looking ahead, Villeroy emphasized the need for a pragmatic and adaptable approach to rate adjustments based on economic data. He remarked, “The rate cut in June should be followed by additional cuts by the year’s end. I advocate for a gradual and flexible strategy, informed by economic indicators.”

However, Villeroy clarified that the ECB would not return to ultra-low or negative interest rates seen during the 2015-2022 period, considering them exceptions to the norm.

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