By Leigh Thomas
PARIS (Reuters) – The European Central Bank should keep its options open for a bigger rate cut next month and its policy rate could eventually fall to a level that once again stimulates growth, ECB policymaker Francois Villeroy de Galhau said on Thursday.
Financial market pricing indicates investors expect the central bank to lower borrowing costs by at least another quarter of a point at its next meeting on Dec. 12. Some market participants even expect a larger cut, as betting activity has shown in recent days.
“Seen from today, there is every reason to cut on December 12. Optionality should remain open on the size of the cut, depending on incoming data, economic projections and our risk assessment,” Villeroy said in a speech at the French central bank, which he also heads.
He added that the ECB should also not rule out possible cuts at following meetings.
After December, investors expect the ECB to cut interest rates at every one of its upcoming meetings at least through next June, bringing its deposit rate from 3.25% currently to 1.75% by the end of 2025.
As inflation settles in durably at the ECB’s 2% target and the growth outlook remains sluggish, Villeroy said interest rates should head at least towards a level where they are neither restricting nor stimulating growth, which he put at 2-2.5%.
“Should we go further…? I wouldn’t exclude it in the future, if growth were to remain subdued and inflation at risk of falling below target,” Villeroy said.
