ECB has significant room for rate cuts

PARIS (Reuters) – The European Central Bank has plenty of room for rate cuts and current market expectations for easing over the long-run are reasonable, ECB policymaker Francois Villeroy de Galhau said in a newspaper interview on Monday.

After a first rate cute next month that Villeroy described as a “done deal”, debate among ECB policymakers remains open about how fast and far to keep easing after that.

Villeroy, who is also the governor of the French central bank, has repeatedly made the case for the ECB adopting an approach of “maximum optionality” after June.

In an interview with German newspaper Boersen Zeitung, he pushed back against suggestions that the ECB should only cut once a quarter when its economic forecasts are updated, which would exclude a July move.

“I don’t say that we should commit already on July, but let us keep our freedom on the timing and pace,” Villeroy added.

Looking through the debate about the short term, market analysts surveyed regularly by the ECB expect it to cut its main rate over time to 2%, which Villeroy described as “not unreasonable”.

“This doesn’t mean that we should go to this rate, but that with a deposit facility rate of 4%, we have significant room for rate cuts,” he added.

An increase in a key euro zone wage indicator last week injected some uncertainty into the outlook, but several policymakers were quick to stress the data should not be over-interpreted.

“For me services inflation matters more than wages or margins,” Villeroy said.