MNI BRIEF: ECB Likely To Start With Moderate Cut - Villeroy

The ECB’s first rate cut will likely be a moderate one and that it is of no “existential” importance if it comes in either April or June, Bank of France Governor Francois Villeroy said Thursday.

The ECB should adopt an approach of “agile gradualism” thereafter and should not be obliged to cut at every policy meeting. The governor noted there was “emerging support” for this approach at the last ECB policy meeting earlier this month. Noting that the risks to inflation are now balanced while those to growth are to the downside, Villeroy said the ECB should aim to achieve a soft landing for the economy.

Noting that evidence suggests the neutral rate of interest is around 2.0 to 2.5% (zero to 0.5% in real terms) in the euro area, Villeroy said this will not necessarily be the ECB’s target. “It simply shows that we have significant leeway to lower our rates before even exiting a restrictive policy stance. (see MNI INTERVIEW: ECB To Cut 50BP, Then Wait And See- Bini Smaghi)