ECB Keeps Options Open on Interest Rates

PARIS (Reuters) – The European Central Bank (ECB) is maintaining flexibility in its approach to upcoming interest rate meetings as the risks of undershooting its inflation target now balance the risks of overshooting it, ECB policymaker Francois Villeroy de Galhau stated on Friday.

The ECB recently cut interest rates for the third time this year, reflecting an increased confidence that inflation is under control, even as uncertainties in the economic outlook persist.

Villeroy mentioned that inflation is expected to reach the ECB's 2% target earlier than previously anticipated next year, emphasizing the need for the bank to be as vigilant about the risk of sustained undershooting as it has been regarding overshooting.

Following Thursday's quarter-point rate cut, the rate on banks' deposits fell to 3.25%. Subsequently, money markets have begun pricing in three additional reductions by next March.

"The direction is to my eyes clear – we should continue to cut our restrictive monetary policy in an appropriate way," Villeroy commented. "But the pace must be guided by agile pragmatism. In an uncertain international environment, we have total optionality for the upcoming meetings," he added.

Villeroy noted that the ECB would concentrate on incoming data, while considering potential short-term volatility, and take into account forward-looking indicators and forecasts.