Image: FABRICE COFFRINI (AFP)
It’s not about acting hastily, the ECB Governing Council member told the Belgian newspaper “L’Echo” on Friday. “But it might be better to act gradually and pragmatically, rather than deciding too late and then having to overcorrect,” he said.
- also read: ECB President Lagarde spoke about possible interest rate cuts
The ECB has been keeping interest rates unchanged since September 2023 after a series of increases in the fight against inflation. The deposit rate that financial institutions receive when they park excess funds with the central bank has since been 4.0 percent – the highest level since the start of the monetary union in 1999. The key interest rate at which banks in the euro area can obtain fresh money from the ECB , is still 4.5 percent.
“Three degrees of freedom”
From Villeroy’s point of view, the ECB has “three degrees of freedom” with regard to its future monetary policy. These concern the timing of the first interest rate cut, the pace of further monetary easing thereafter and finally the interest level to which the rates could fall. “The fact that we have these three degrees of freedom could be another argument why we shouldn’t delay the first cut for too long,” Villeroy said.
Asked about the speed with which the ECB might take further steps down after the first rate cut, he said: “We will continue to be guided by the data.” According to the governor of the Banque de France, there should not be a new interest rate outlook – known in the professional world as “forward guidance”. On Thursday, ECB President Christine Lagarde warned against a hasty interest rate cut in a hearing in the EU Parliament. That could lead to longer-lasting inflation and force monetary authorities to tighten monetary policy again, she said.
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