Villeroy advocates a rate cut in the spring to ward off a “hard landing”

PARIS (Reuters) – François Villeroy de Galhau, member of the Governing Council of the European Central Bank (ECB), recommended on Thursday a first moderate rate cut by the ECB from April or June in order to “take insurance ” against the risk of a hard landing of the euro zone economy.

“Monetary policy itself acts with delay, waiting too long would put us in danger of finding ourselves ‘behind the curve'”, declared the governor of the Bank of France during a speech at the University of Paris – Dauphine.

“The precise date of this first reduction – April or early June – is not of existential importance: I reiterate here my conviction that it should take place in the spring, and this independently of the calendar of the American Federal Reserve”, said he added, while the money markets are now mainly betting on a rate cut by the Fed in July, due to the latest high inflation figures in the United States.

“We will probably start with a moderate reduction. We will not then be obliged to reduce rates at each Governing Council, but we will have to keep the option,” he continued.

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François Villeroy de Galhau estimated that we should not fear excessively the so-called “last mile” risks, i.e. a slower and more difficult decline in underlying inflation as it approaches the 2 target. % set by the ECB, which began a monetary tightening policy in July 2022 in the face of soaring prices.

“Monetary management will have to be fine to make a successful landing,” he warned. “If inflation then falls below our target for a long time, we risk having to lower interest rates further and more aggressively, or even find ourselves stuck again at the ‘lower border’ of interest rates. .”

(Leigh Thomas, Jean-Stéphane Brosse for the French version, edited by Bertrand Boucey)