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ECB’s confidence in fight against inflation growing, Villeroy says

file photo: european flags are seen in front of the ecb building, in frankfurt
The European Central Bank building, in Frankfurt, Germany

The European Central Bank (ECB) is increasingly confident that it is winning the fight against inflation, which makes an interest rate cut in June very likely, according to ECB policymaker Francois Villeroy de Galhau.

The ECB held rates at a record high last week but signalled it could start cutting them as soon as June, even though stubbornly high US inflation could stop the Federal Reserve from following close behind.

“Barring surprises, we should decide a first rate cut during our June meeting. We are indeed growing more and more confident in the disinflation path,” Villeroy told the French JDD magazine.

“The interest rate tool has been an effective weapon against inflation. We had to lift that rate to 4 per cent but it is less than in the United States, where it stands at 5.5 per cent,” he added.

Villeroy, who is also governor of the French central bank, is among a growing number of ECB policymakers that have supported rate reductions.

He said last month that if inflation undershot the ECB’s 2 per cent target for a sustained period then the ECB risked having to cut rates even more aggressively.

He told JDD: “The June rate cut should be followed by more rate cuts by the end of the year; I call for a pragmatic and yet adequately nimble gradualism, based on economic data.”

“That being said, we will not go back to ultra low, even negative rates: the ones that we have seen during the 2015-2022 period were the exception.”

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