Washington: The European Central Bank (ECB) will probably lower interest rates further this year as there are currently no inflation risks, according to Governing Council member Francois Villeroy de Galhau.
The effect of President Donald Trump’s tariffs on eurozone prices is uncertain and could on the whole drag it down, the French official said in Washington.
“There is currently no inflationary risk in Europe, and we can now almost say ‘mission accomplished’ when it comes to bringing inflation back to our 2% target,” he said Wednesday in a speech at the Atlantic Council.
“The significant deceleration of wages is another proof thereof. It is therefore both fair and appropriate that, compared with the US Federal Reserve or the Bank of England, the ECB has started cutting rates earlier, faster, and likely further this year,” he added.
The ECB lowered borrowing costs last week for the seventh time since last June as global trade tensions threaten to derail the region’s economic recovery.
Villeroy welcomed the decision at the time as an example of what he calls “agile pragmatism” – acting quickly in response to the latest available data.
Still, he said that while cuts will support economic activity in the short term, Europe still needs to focus on overcoming structural hurdles to stronger growth – such as better integration of its economies.
The comments echo President Christine Lagarde, who said earlier Wednesday that it’s very unclear how trade tensions will hit prices, but it will probably be disinflationary more than inflationary.
ECB chief economist Philip Lane also sounded confident at a separate event in Washington, saying there’s been “a lot of reassurance in the recent data” that inflation should settle around the 2% goal.
Recent shocks still mean there’s been a “gear change” at the ECB that means it will have to be agile in responding to new developments on trade, financial-market moves and fiscal policy in Europe.
But some European policymakers meeting in Washington have sounded more cautious.
Dutch central bank chief Klaas Knot said the fallout from tariffs and increased spending in Germany is less clear and there isn’t currently a need to stimulate the economy by reducing rates to accommodative levels. — Bloomberg
