Francois Villeroy, ECB: "We will probably cut interest rates this month"

The European Central Bank (ECB) will probably cut interest rates at the monetary policy meeting in October, says Francois Villeroy de Galhau, a member of the ECB Governing Council, quoted by La Repubblica publication, Bloomberg reports.

Francois Villeroy, who is also the governor of the central bank of France, pointed out that the inflation rate in the euro area fell below the ECB's target of 2% in September, and the core inflation should gradually reach close to 2% next year. Market expectations point to inflation below 1.8% in 2025, even lower than the ECB's forecasts, Villeroy said, adding: "All this leads to a change in risks. Over the past two years, our main objective has been to reach the ECB's inflation target of 2%. Now we have to pay attention to the opposite risk, of not meeting the forecasts, due to weak growth and a too long period of maintaining the restrictive monetary policy".

Immediately after the ECB cut interest rates at its September 12 meeting, Villeroy said officials should continue with a gradual approach but must be careful about the inflation target. The next meeting of the ECB is scheduled to take place on October 17.

"We advocated in the ECB Governing Council to maintain all the options for October. I will not change my opinion today and I will not abandon the pragmatic approach, from meeting to meeting," said Villeroy.

Recent data show a deterioration in economic activity in the euro zone, and investors expect, in proportion to approximately 90%, the interest rate cut in October.

Asked if the ECB could extend monetary policy easing, Villeroy explained that if the institution meets its objectives, it should not keep interest rates at a level that does not stimulate the economy.

"If inflation remains at 2% next year, and we still have poor growth prospects in Europe, there will be no reason for monetary policy to remain restrictive", explained Villeroy, at the same time minimizing the risks to inflation following the increase in crude oil prices, on the background of tensions in the Middle East.

Villeroy concluded: "We should carefully monitor this very volatile situation. But as long as it's temporary and doesn't spill over to core inflation, an increase in oil prices shouldn't necessarily change our monetary policy."

The annual inflation rate in the euro zone reached 1.8% in September, from 2.2% in August, against the backdrop of lower energy costs, according to Eurostat. Analysts expected inflation of 1.9%. Official data show that core inflation, which excludes prices of volatile goods such as energy and food, fell to 2.7% in September from 2.8% in August. Analysts were expecting a level of 2.8%. Core inflation is the indicator followed by the ECB in order to take monetary policy decisions.

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