European Central Bank Should Consider Rate Cut

PARIS (Reuters) – The European Central Bank (ECB) would be “wise” to implement another interest rate cut in September, according to French policymaker Francois Villeroy de Galhau. He expressed concerns about the risk of missing the inflation target if action is delayed.

Current Inflation Status

Inflation in the euro zone has dropped to its lowest level in three years, recorded at 2.2% in August based on preliminary figures released on Friday.

Economic Growth Concerns

Villeroy noted that economic growth remains weak, stating that “the balance of risks still needs to be monitored in Europe.” He affirmed that it would be “fair and wise” for the ECB to opt for a new rate cut.

Future Inflation Projections

As governor of the French central bank, Villeroy anticipated that inflation would likely align with the ECB’s 2% target during the first half of next year in France and by the second half of 2025 for the broader euro zone.

However, he cautioned that if the ECB waits for inflation to reach the 2% target before enacting a rate cut, it may be too late, risking failure to meet the target.

Market Expectations

Villeroy also indicated that expectations from financial markets regarding ECB rates potentially falling to 2%-2.5% next year seemed “reasonable” to him.