Interest Rate Cut Anticipated by ECB

FRANKFURT (Reuters) – The European Central Bank (ECB) is likely to cut interest rates on October 17 due to weak economic growth, which heightens the risk of inflation falling below its 2% target, according to French Central Bank Chief Francois Villeroy de Galhau in an interview with an Italian newspaper.

The ECB has already lowered rates from record highs twice this year, and markets anticipate additional policy easing in October and December as inflationary pressures decrease more quickly than expected.

“Yes, quite probably,” Villeroy stated when asked about the possibility of a cut this month. He added, “In the last two years our main risk was to overshoot our 2% target. Now we must also pay attention to the opposite risk, of undershooting our objective due to weak growth and a restrictive monetary policy for too long.”

ECB President Christine Lagarde has hinted strongly that an October rate cut is imminent, with other policymakers supporting her view.

Villeroy also forecasted further cuts to the current 3.5% deposit rate next year, suggesting the ECB may reach a neutral rate around 2025, which neither slows nor stimulates growth. He explained that if inflation sustainably reaches 2% next year amid sluggish growth in Europe, there would be no rationale for maintaining restrictive monetary policy.

Although oil prices surged due to unrest in the Middle East, Villeroy mentioned that the ECB generally overlooks temporary shocks that do not affect underlying prices. “The victory against inflation is in sight, but it’s not a reason to become complacent and relax on a preset course,” he concluded.