

Market Analysis
The European Central Bank (ECB) is likely to lower interest rates on October 17 due to sluggish economic growth, which heightens the risk of inflation falling below its 2% target, according to French Central Bank Chief François Villeroy de Galhau in an interview with an Italian newspaper.
This year, the ECB has already reduced rates from record highs twice, and the market anticipates even faster policy easing, with expected adjustments in both October and December as inflationary pressures diminish more quickly than policymakers had predicted.
When asked about a potential cut this month, Villeroy responded, "Yes, quite probably," in comments reported by La Repubblica on Monday. He noted, "In the last two years, our primary concern was exceeding our 2% target. Now, we must also consider the opposite risk of falling short of our goal due to weak growth and a prolonged restrictive monetary policy."
Last week, ECB President Christine Lagarde provided the clearest indication yet of an upcoming rate cut in October, and since then, other policymakers have expressed support for this stance.
Villeroy also forecasted additional reductions to the current 3.5% deposit rate next year, suggesting that the ECB could return to the "neutral" rate—one that neither slows down nor stimulates growth—by 2025. "If we are sustainably at 2% inflation next year, and with a continued sluggish growth outlook in Europe, there won’t be any justification for maintaining a restrictive monetary policy or for our rates to exceed the neutral interest rate," he stated.
While he did not specify the neutral rate, he mentioned that market estimates place it around 2%, indicating the possibility of six more cuts, including two more this year and four in 2025, assuming the ECB continues to adjust rates in 25 basis point increments.
Despite the recent spike in oil prices due to instability in the Middle East, Villeroy emphasized that the ECB generally tends to overlook such shocks as long as they are temporary and do not contribute to underlying inflationary pressures. "The victory over inflation is within reach, but that does not warrant complacency or a deviation from our planned course," he added.
Paraphrasing text from "Reuters" all rights reserved by the original author.