ECB’s Villeroy Says September Rate Cut Is ‘Fair and Wise’

(Bloomberg) -- European Central Bank Governing Council member Francois Villeroy de Galhau backed a cut in interest rates next month after data showed a marked slowdown in inflation in August.

The ECB should anticipate future progress in containing price increases, according to the Bank of France governor. He expects inflation to be sustainably at the 2% target by the first half of 2025 in France and the second half in the 20-nation euro area.

“Our meeting on Sept. 12 should in my view take action,” Villeroy said in an interview published Friday on the website of Le Point magazine. “It would be fair and wise to decide on a new rate cut.”

The comments are among the most explicit commitment to loosening policy at the next meeting. Other officials have signaled such a move is increasingly likely after data showed prices rose 2.2% from a year ago this month — down from 2.6% in July.

Other rate-setters have taken a more cautious view, with Executive Board member Isabel Schnabel saying the central bank shouldn’t move too quickly as elevated services inflation could hold back the retreat.

Villeroy said services inflation is indeed “too strong,” but with significant progress combating the overall price-pressure, the ECB should also be wary of the risk of not having enough economic growth, and therefore inflation below target.

“I’m calling for active and pragmatic gradualism, which means being guided both by data — observed inflation — but also expectations and forecasts,” he said. “The market expects interest rates in the euro area next year between 2% and 2.5%. Seen today, that seems reasonable to me, without that being a forecast.”

(Updates with more Villeroy comments in last two paragraphs.)

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