Published by Global Banking & Finance Review®
Posted on June 19, 2025
2 min readLast updated: January 23, 2026
Add as preferred source on GoogleECB may cut rates in six months, says Villeroy, amid euro strength and inflation concerns. Geopolitical tensions could impact policy.
PARIS (Reuters) -If the European Central Bank decides to move on interest rates in the next six months, it would most likely be a cut, ECB policymaker Francois Villeroy de Galhau said on Thursday.
The ECB signalled a pause in policy easing this month despite projections showing price growth dipping below its 2% target temporarily due to the strong euro and low oil prices, reviving worries that the ultra-low inflation environment of the pre-pandemic decade could return.
"Barring a major exogenous shock, including possible new military developments in the Middle East, if monetary policy were to move in the next six months, it could be more in the direction of accommodation," Villeroy said in a speech at the European University Institute in Italy.
Crude oil prices jumped 7% on Friday after Israel launched an unprecedented wave of airstrikes on Iran, prompting Tehran to fire hundreds of ballistic missiles at Israel.
Villeroy, who is also governor of the Bank of France, said that the ECB would monitor the situation for signs of a spillover from energy prices into underlying inflation and broader price expectations, which could prompt it to adapt monetary policy accordingly.
While oil prices have risen off recent lows before Israel's move against Iran, the strength of the euro helps to offset the impact in Europe.
A 10% appreciation in the euro's exchange rate broadly compensates for the inflationary effect of a 10 euro increase in oil prices, Villeroy said.
Meanwhile, financial market pricing suggests that there is a bigger risk that euro zone inflation undershoots the ECB's 2% inflation target rather than overshooting it.
The ECB's own projections this month see inflation falling below 2% in the second quarter of this year and returning to the target in 2027 partly due to the introduction of a new emissions trading system.
"In such a context, we need to remain alert and agile, in all our next meetings," Villeroy said.
(Reporting by Leigh ThomasEditing by Frances Kerry)
Francois Villeroy de Galhau stated that if the ECB decides to move on interest rates in the next six months, it would most likely be a cut.
Villeroy mentioned that barring a major exogenous shock, such as new military developments in the Middle East, the ECB's monetary policy could lean towards accommodation.
Villeroy explained that a 10% appreciation in the euro's exchange rate broadly compensates for the inflationary effect of a 10 euro increase in oil prices.
The ECB's projections indicate that inflation is expected to fall below the 2% target in the second quarter of this year and return to the target by 2027.
Financial market pricing suggests a greater risk that euro zone inflation will undershoot the ECB's 2% target rather than overshoot it.
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