Is the interest rate cut not over yet? ECB Governing Council Member: Rates can still be adjusted quickly
European Central Bank Governing Council member Francois Villeroy de Galhau stated that despite the eighth consecutive interest rate cut, the European Central Bank may still adjust rates quickly. He pointed out that the current inflation rate is projected at 2%, but flexibility is needed in an uncertain environment. Analysts believe that with inflation slowing, there is limited room for future rate cuts, and some officials expect a pause in rate cuts at the July meeting. Economic data shows a slowdown in the Eurozone economy, and uncertainty in trade policy remains a major risk
According to the Zhitong Finance APP, Francois Villeroy de Galhau, a member of the European Central Bank's Governing Council and the Governor of the Bank of France, stated that even after the eighth consecutive interest rate cut to "normalize monetary policy," the European Central Bank may still adjust interest rates quickly. Francois Villeroy de Galhau said, "Since last Thursday, we have been in a favorable '2 and 2' range—this year's inflation forecast is 2%, which is our target, and the key interest rate level is also at 2%." "However, in such an uncertain environment, this favorable range does not mean it is a comfortable or static range. We will remain pragmatic, data-driven, and maintain sufficient flexibility when necessary."
The European Central Bank cut interest rates by 25 basis points as expected last Thursday, lowering the deposit facility rate to 2%. ECB President Christine Lagarde stated after the interest rate decision that policymakers are now "in a good position" and "are approaching the end of a monetary policy cycle." Some analysts believe that as inflation in the Eurozone slows, Lagarde is signaling limited room for future rate cuts. Some ECB officials have already anticipated a pause in rate cuts at the next meeting in July.
However, Lagarde also mentioned that the current monetary policy cycle has entered a new phase, but future interest rate trends will depend on economic data performance. The ECB will respond flexibly to changes in the situation and continue to firmly achieve its price stability target without pre-setting a policy path. Olli Rehn, a member of the ECB and Governor of the Bank of Finland, also expressed similar views on Tuesday.
It is worth noting that economic data shows a more pronounced slowdown trend in the Eurozone economy. At the same time, trade policy uncertainty remains the biggest risk variable for the Eurozone economy, and geopolitical games continue to disrupt corporate investment decisions. Therefore, in the face of uncertain economic prospects, some ECB officials are open to further rate cuts. However, there are also hawkish ECB officials warning that plans by NATO member countries to increase military spending could drive up prices, combined with demographic changes and supply chain restructuring pressures, making medium-term inflation risks non-negligible.
Carsten Brzeski, head of macro research at ING, pointed out that the unstable economic policies of the United States have a dual impact. On one hand, U.S. tariff threats suppress European investment and exports; on the other hand, the resulting crisis of confidence in the dollar and capital outflows have pushed up the euro exchange rate, helping the ECB curb imported inflation. This complex external environment makes it difficult for the ECB to balance between stimulating the economy and controlling inflation
