Second François Villeroy de Galhaumember of the Governing Council, the ECB will “almost certainly” reduce the interest rates during the October meeting. In September, inflation fell below the 2% target, and the main measure of price increases is expected to gradually return to close to that level by 2025, the governor of the French Central Bank said in an interview with La Repubblica .
Villeroy’s words on rate cuts
Villeroy de Galhau also underlined that market expectations for inflation in 2025 are below 1.8%, lower than the ECB’s forecasts. “All this indicates that the balance of risks is changing,” he said. “For the last two years, our main risk was to exceed the 2% target. Now we must also consider the opposite risk, that is, not reaching this objective due to weak growth and a restrictive monetary policy that has continued for too long.”
Immediately after the September 12 meeting, Villeroy had said that policymakers should continue to follow a gradual approach, taking care not to remain either below or above the2% inflation target. After the September meeting, data revealed the first reading of inflation below 2% in more than three years, with polls indicating a deterioration in economic activity. Currently, investors estimate about a 90% chance for a rate cut in October.
A new rate cut, the third in 2024 (after those in June and September), now seems imminent. The perception is so strong that investors now rate a 90% chance of a reduction announcement at the meeting October 17, where the ECB Governing Council will meet in Slovenia. As highlighted by Bloomberg, even economists who previously expected a single move in December are revising their forecasts, such as Morgan Stanley, Barclays and Goldman Sachs. “If inflation stabilizes around 2% next year and with the prospect of slow growth in Europe, there will be no reason to maintain a restrictive monetary policy,” Villeroy added.
What he said about the Unicredit-Commerzbank merger
In response to a question about the operation Unicredit-Commerzbank, Villeroy de Galhau said: “It must not be a political or nationalistic issue, in any country. Fortunately, thanks to the Banking Union, the decision-making process is in the hands of a European institution with an independent and technical evaluation, namely the ECB. Second, the ECB – he observes – will have to decide not only on the agreement itself, with its challenges and its financial implications, but also, and above all, the solidity, sustainability and governance of a possible new group”
The issue of the acquisition of Commerzbank has been stirring the financial waters for weeks. Today a new and clear no came from the newly elected CEO of the German group Bettina Orlopp, who explained how the integration of two large banks is extremely difficult and, even if it looks good on paper, this “does not mean it will be executed well” and “can be successful and create value” for shareholders.