The first interest rate cut should not be postponed for too long

PARIS (Reuters) – There are several compelling reasons why the European Central Bank should not wait too long before making its first interest rate cut this year.

This was stated by François Villeroy de Galhau, Governor of the Bank of France and Member of the European Central Bank.

“It is not about rushing, but about acting gradually and practically, instead of making a decision too late and then having to adapt too much,” he said in an interview with the Belgian newspaper L’Echo.

Villeroy was responding to a question about whether he would prefer a rapid cut in interest rates, followed by a moderate easing of monetary policy, rather than waiting longer and then having to cut interest rates more aggressively.

When asked at what pace the ECB might ease monetary policy further once the first cut is made, Villeroy replied: “We will continue to be guided by the data and, in my opinion, it will not be a question of introducing new ‘forwards’.” 'Irshad'.

Villeroy added that the ECB has “three degrees of freedom” regarding its future monetary policy, namely the timing of the first interest rate cut, the pace of further easing in monetary policy, and therefore the level to which interest rates can fall.

“The fact that we have these three degrees of freedom could be another reason why we cannot postpone the first cut for too long,” he said.

In January, the European Central Bank kept interest rates at a record 4%. Christine Lagarde, President of the European Central Bank, said yesterday that we should avoid cutting interest rates too early, as this could prolong high inflation and even force the institution to tighten monetary policy again.

(Translated by Laura Contimori, Edited by Gianluca Semeraro)