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ECB’s Villeroy: should not hold off first rate cut for too long

PARIS (Reuters) – There are several compelling reasons why the European Central Bank should not hold off for too long on an initial interest rate cut this year, ECB member and Bank of France head Francois Villeroy de Galhau said on Friday.

“It’s not a question of rushing into things; but acting gradually and pragmatically may be preferable to deciding too late and then having to over-adjust,” Villeroy told Belgian paper L’Echo.

Villeroy’s comments came in response to a question as to whether his position was to favour rapid interest rate cuts and then follow with a moderate easing of monetary policy over waiting longer and having to then cut rates more aggressively.

Asked about the pace at which the ECB could further ease its monetary policy once it made the first cut, Villeroy replied: “We will remain guided by the data, and in my sense there will not be any question of giving a new ‘forward guidance’.”

Villeroy added the ECB had “three degrees of freedom” regarding its future monetary policy, namely the timing of the first rate cut, the pace of further monetary policy easing afterwards and then the level to which rates could fall.

“The fact that we have these three degrees of freedom could be another argument as to why we should not hold off for too long the first cut,” he said.

In January, the ECB kept interest rates at a record high of 4%. On Thursday, ECB President Christine Lagarde said the ECB had to avoid cutting rates too early because that could prolong high inflation and even force the bank to tighten policy again.

 

(Reporting by Sudip Kar-Gupta and Mathieu Rosemain; Editing by Jamie Freed)

 

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