Two European Central Bank policymakers said today that given the increased likelihood of inflation falling to the ECB's target level, further monetary easing should be considered.
Yesterday, ECB held its main refinancing rate unchanged at 4.25%. The ECB’s interest rates on the marginal lending facility and the deposit facility were also left unchanged at 4.50% and 3.75%, respectively. The outcome was widely expected after a 25-basis-point rate cut at the central bank’s previous meeting. Meanwhile, answering the question about the prospects of a September rate cut, ECB chief Lagarde said what the ECB's policymakers do in September, is wide open and will be determined based on all the data they will be receiving.
However, today French governor Francois Villeroy de Galhau and governor of the Bank of Lithuania Gediminas Simkus supported market expectations for two more rate cuts this year, in September and December.
"The market's expectations regarding the dynamics of interest rates at the moment seem to me quite reasonable," Villeroy de Galhau said.
Meanwhile, Simkus took a more hawkish tone and said interest rates would "continue to fall, quite significantly" by 1% per year.
Current market pricing suggests that the ECB deposit rate will decrease from 3.75% currently to 2.5% by the end of next year.
Villeroy de Galhau and Simkus also supported the ECB's latest forecast, according to which inflation in the eurozone will fall to the target level (2%) in the second half of next year.