The ECB should keep its options open to cut interest rates further next month and its policy rate may eventually fall to a level that stimulates growth again, ECB policymaker Francois Villeroy de Galhau said.
Financial market pricing indicates that investors expect the central bank to cut borrowing costs by at least another quarter point at its next meeting on December 12, and some market participants expect an even bigger cut, as betting activity has shown in recent days.
“From today, there is every reason to cut rates on December 12,” Villeroy said in a speech at the French Central Bank, which he also heads. “Options must remain open on the size of the cut, depending on the incoming data, the economic outlook and our assessment of the risks.”
He added that the ECB should also not rule out possible cuts at the following meetings.
After December, investors expect the European Central Bank to cut interest rates at each of its upcoming meetings at least until June, which will raise the interest rate on deposits from 3.25% currently to 1.75% by the end of 2025.
With inflation holding permanently at the ECB’s 2% target and growth expectations continuing to slow, Villeroy said interest rates should at least move towards a level where they neither constrain nor stimulate growth, which he put at 2-2.5%.
“Should we go further…? I would not rule it out in the future, if growth remains weak and inflation is at risk of falling below target,” Villeroy said.
