(Bloomberg) -- Market bets that point to two additional European Central Bank interest-rate cuts in 2024 sound “reasonable,” according to Governing Council member Francois Villeroy de Galhau.
“I won’t make a prediction because it will depend on data,” he told BFM Business television on Friday. “We are looking more at the forecast for 2025 than the fluctuations in 2024 as there will be highs and lows from one month to the next. That said, we are free in our decisions, but today the market expectations on the rate path seem to me to be rather reasonable.”
Traders are pricing 20 basis points of rate cuts at the next policy meeting in September, equivalent to an 80% chance of a quarter-point move. They’re still leaning toward two cuts of that size for the rest of this year.
The ECB on Thursday kept its deposit rate at 3.75%, with President Christine Lagarde saying the next gathering on Sept. 11-12 is “wide open.” Still, with inflation pressures lingering, officials are becoming less confident that a path for two further reductions is realistic, and don’t want investors to assume that a move in September is a done deal, according to people familiar with the matter.
Speaking later Friday, Villeroy’s Lithuanian counterpart, Gediminas Simkus, said he also agrees with current market pricing.
“If there are no surprises or black swans and inflation converges as expected, further monetary-policy easing will undoubtedly be on the table in the next meetings,” he told reporters in Vilnius.
“I have no doubt that the issue of cutting will be put up for discussion in September,” Simkus said, though stressed that it’s unclear whether a move will materialize since the ECB must still assess new data over the coming weeks.
Others were more guarded, with Estonia’s Madis Muller warning against pre-commitments.
“I think it’s important that if the next ECB Governing Council meeting is in September that we wouldn’t promise too much in advance,” he said. Muller acknowledged market expectations for “at least one more cut,” but added that “I personally wouldn’t comment.”
In an interview with local radio Aripaev, he highlighted that services inflation around 4% and wage growth at 5% are “not in line with the 2% target.” Still, “I think it’s realistic that in next 12 months, inflation will continue to be see a decelerating trend,” he said.
Finland’s Olli Rehn also cautioned against pre-committing to a specific path for borrowing costs, saying upside risks to prices persist.
The ECB’s quarterly survey of professional forecasters published Friday showed that the central bank will meet its inflation target in 2025. Consumer prices will rise 2% next year — matching the prediction from the previous poll. The projection for 2024 was also unchanged at 2.4%, while the outlook for 2026 dipped to 1.9% from 2%.
Villeroy also took a more positive view, saying disinflation is continuing as expected and that the rate of price increases will continue to slow with certainty. Getting down to the ECB’s inflation goal next year is a commitment rather than just a prediction, barring shocks, he said.
The French central banker also said that the ECB was particularly attentive to inflation in services, where there is “a bit of stickiness.”
Turning to his home country, which has been rocked by uncertainty after President Emmanuel Macron called snap elections, Villeroy said “attention is being paid” to what’s happening.
“There is the question of the spread, which was 50 basis points with Germany on 10-year rates before the dissolution of parliament — it rose significantly, but today it is 65 basis points,” he said. “I won’t anticipate choices that will be made, but it is very important that France keeps control over its public debt and public deficit — that is what will be most watched for the spread.”
--With assistance from Milda Seputyte, Ott Tammik, Kati Pohjanpalo and Marilen Martin.
(Updates with Lithuanian, Finnish central bankers starting in fifth paragraph.)
©2024 Bloomberg L.P.