After a 200 basis point rate cut, ECB officials hint at the end of the easing cycle, declaring "victory" in the inflation battle
European Central Bank officials stated that the interest rate cut cycle is nearing its end, and inflation has been defeated. The Governor of the Bank of Estonia, Madis Müller, pointed out that the deposit rate has been reduced to 2%, with a cumulative cut of 200 basis points, and the future policy direction remains unclear. The Governor of the Bank of France, François Villeroy de Galhau, is optimistic that the European Central Bank has completed its mission to combat inflation, predicting that the inflation rate will reach 2%. Despite a sluggish economic recovery, unlike the United States, the Eurozone has not experienced price effects caused by tariffs
According to the Zhitong Finance APP, Madis Müller, the Governor of the Bank of Estonia and a member of the European Central Bank's Governing Council, stated that the bank is nearing the end of the current interest rate cut cycle, while another colleague claimed that inflation has been defeated. The European Central Bank announced a 25 basis point reduction in the deposit rate to 2% on June 5, in line with market expectations.
The day after the European Central Bank announced its eighth interest rate cut in a year, Müller stated in an interview: "President Lagarde's summary yesterday was very insightful — we may have basically completed the current interest rate cut cycle. As for future trends, no one can provide a definitive answer at this time."
The monetary policy meeting on Thursday decided to lower the deposit rate to 2%, bringing the total reduction in this cycle to 200 basis points. According to informed sources, the decision-makers are currently considering pausing actions in July, with some officials even believing that the easing cycle that began in June 2024 has already ended.
Due to the impact of U.S. President Trump's trade policies, the inflation outlook remains highly uncertain. When releasing new quarterly forecasts, the European Central Bank presented both mild and severe scenarios, highlighting extreme unpredictability.
Müller stated: "While we can take comfort in seeing the average annual price increase approaching the target of 2%, and we can even say it has basically been achieved, the strength of the economic recovery remains weak. The 'uncertainty faced by policymakers is far beyond normal levels.'"
François Villeroy de Galhau, the Governor of the Bank of France, offered a more optimistic interpretation of consumer price trends, even claiming that the European Central Bank has completed its mission.
"We have won the battle against inflation," he stated, "France's inflation rate is now below 1%, and the overall rate for Europe is 1.9%, which we predict will reach 2% this year."
Villeroy pointed out that, unlike the United States, the Eurozone has not yet seen price effects triggered by tariffs.
He analyzed, "Tariffs mean that American consumers have to pay higher costs for imported goods," "but across the Atlantic, Europe, although negatively impacted by economic growth — albeit to a lesser extent than the U.S. — has not experienced inflationary pressures."
He emphasized, "We indeed have good news about overcoming inflation," a view echoed by Gediminas Šimkus, the Governor of the Bank of Lithuania.
"It is reassuring that the difficult period of high inflation has ended," Šimkus told reporters in Vilnius. He defined the current policy stance of the European Central Bank as neutral and declined to predict the future path of interest rates
