ECB's Billelroy: "First Interest Rate Cut Needed Between April and June... Risky to Delay Too Long"

Fran?ois Villeroy de Galhau, Governor of the Bank of France and a policymaker at the European Central Bank (ECB), stated that economic risks are inevitable with the prolonged high interest rates and that the first rate cut should be implemented between April and June.

[Image source=Reuters Yonhap News]

According to Bloomberg and other sources, Governor Villeroy said in a speech on the 28th (local time), "The inflation risk is now balanced, but growth risks are under downward pressure," adding, "It is time for the ECB to start cutting rates as insurance against the second risk."

He supported the first rate cut at the April or upcoming June meeting, warning, "If we wait too long to cut rates, we may be forced to cut rates much more aggressively in the future." He explained that the economic risks from prolonged high interest rates cannot be ignored.

He also emphasized, "Specifically, whether the first rate cut happens in April or early June is not practically important," and stressed, "Regardless of the U.S. Federal Reserve (Fed) schedule, the ECB's rate cut should be implemented during the spring." He added that such a rate cut would "probably start with a moderate cut."

This aligns with the remarks of Fabio Panetta, ECB Executive Board member, who previously said that rate cuts should begin soon. Panetta noted that inflation is retreating rapidly and stated, "If future data confirm the scenario projected in March, we should be ready to swiftly withdraw the restrictive stance." Signals indicating that rates have peaked in most advanced economies have also been confirmed, such as the Swiss National Bank's surprise rate cut last week, ahead of the Fed and ECB.

In the market, considering the recent statements from ECB officials, a rate cut in April or June is seen as highly likely. Bloomberg reported, "Governor Villeroy is one of the small group who sees a rate cut in April as possible, while placing more weight on a June cut," adding, "Most officials support President Christine Lagarde's signal for a June cut."

However, uncertainty remains regarding the future direction of monetary policy. Major foreign media pointed out that the ECB has focused more on energy prices than supply-side issues in its inflation assessment process for monetary policy decisions, suggesting that policy planning will be difficult due to the Russia factor. The media also noted that some voices remind that the effects of the accumulated tightening policies have not yet been fully confirmed in the economy.