French ECB Governing Council member Francois Villeroy de Galhau signaled there is “still scope for further easing,” though he emphasized that the pace and magnitude remain uncertain.
Speaking to Frankfurter Allgemeine Zeitung, Villeroy acknowledged that current market expectations of ECB rates around 2% by summer represent a “possible scenario,” considering Europe’s summer period spans from June through September.
He also addressed recent tightening in financial conditions, noting that the rise in long-term bond yields—triggered by Germany’s massive defense and infrastructure spending plans—must be factored into ECB’s monetary policy assessment.
The spending surge, aimed at countering a perceived US retreat in global leadership, has raised concerns about its inflationary impact. However, Villeroy downplayed those risks, arguing that Europe’s weak domestic demand could offset inflationary pressure from higher public expenditure.
He added that if such fiscal spending is coupled with expanded industrial supply, the inflation impact would likely be limited.
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