ECB/Villeroy: ECB to Closely Monitor Risk of Falling Below Target

Forex - The President of the Bank of France and European Central Bank (ECB) policymaker Francois Villeroy de Galhau stated that the ECB is not behind the curve in reducing interest rates but must remain cautious against the risk of falling below the inflation target and unnecessarily suppressing growth.

The ECB has cut rates three times this year, and investors foresee additional easing, expecting the deposit rate currently at 3.25% to drop to at least 2% by the next meeting in June, potentially even lower.

However, as highlighted by today's disappointing PMI data, the weakening in the business sector supports the argument that the ECB may need to accelerate its policy easing and might have to provide stimulus to support the economy.

Villeroy remarked in Frankfurt, "We are not behind the curve today. The European economy is undergoing a soft landing."

He acknowledged the presence of risks in the outlook and emphasized that policymakers need to ensure interest rates do not remain too high for an extended period.

The French banker added, "We will pay close attention to the balance and symmetry of risks, including the risk of falling below our inflation target and unnecessarily keeping economic activity low."

Villeroy argued that inflation is moving toward the target and that the ECB could sustainably reach 2% much earlier than its latest forecast for the end of 2025.

He stated, "We are very confident that we will sustainably achieve our 2% target. In fact, we may reach it earlier than expected in 2025 compared to our September forecasts."