BUDAPEST/FRANKFURT, Sept 13 (Askume) – The European Central Bank’s two major shareholders on Friday expressed confidence in the outlook for low inflation and low interest rates in the euro zone.
Bank of France Governor François Villeroy de Gallo and Bundesbank President Joachim Nagel were more confident on Thursday in backing interest rate cuts than they have been in the past two years , saying victory is near as the European Central Bank fights high inflation.
“Inflation is looking very good,” Nagel told German radio station Deutschlandfunk. “We are now confident, and the data shows, that we will reach our 2% inflation target by the end of next year.”
Villeroy said the “way forward” is clearly to lower interest rates, even if slowly and dependent on incoming data.
“We must continue to ease monetary policy restrictions gradually and appropriately,” he said in a speech at the Eurofi financial forum in Budapest.
“But the pace must be very pragmatic: we are not committing in advance to a particular rate path and we are keeping all options open for the next meeting.”
Inflation in the 20 countries that use the euro fell to 2.2% in August, the lowest growth rate since July 2021, and the European Central Bank expects it to reach 2.2% in the final quarter of next year after a modest jump in the coming year.
Economic growth is also slowing, especially in industrial powerhouse Germany , strengthening the case for lower borrowing costs.
Villeroy said rising inflation expectations and disappointing activity data made Thursday’s rate cut an “obvious” move and that the ECB should now also focus on the risks of too low inflation.
His Finnish colleague Olli Rehn said lower borrowing costs would boost economic growth but Europe must take a leadership role in raising productivity.
The Bundesbank and the Banque de France hold the largest shares of the ECB’s capital based on the size of their countries’ economies and populations.
