Eurozone Inflation and Interest Rates

FRANKFURT (Reuters) – Euro zone inflation will return to the European Central Bank’s (ECB) 2% target by summer, with interest rates potentially continuing to fall to support the economy, according to French central bank chief Francois Villeroy de Galhau. This statement came a day after the ECB implemented its fourth consecutive rate cut.

> “The direction of the travel is clear: our monetary policy will go from restrictive towards neutral,” Villeroy stated at a meeting held by think-tank OMFIF in London on Friday. “We should be sustainably around our 2% inflation target by this summer.”

Currently, inflation is projected at 2.4% this month and is expected to remain at this level for a few months before declining again, according to ECB President Christine Lagarde.

Villeroy emphasized that while the direction for rate moves is clear, governors will exercise “agile pragmatism” in determining the exact pace of cuts.

Markets anticipate that the ECB will implement three more rate cuts this year, reducing the deposit rate to 2% by the end of 2025. This would align with Lagarde’s estimates for the neutral rate, which neither stimulates nor hampers economic growth.