ECB Signals Possible Further Rate Cuts Amid Eurozone Inflation Trends

On June 24, 2025, François Villeroy de Galhau, Governor of the Banque de France and a key member of the European Central Bank's (ECB) Governing Council, indicated that the ECB could consider further interest rate cuts despite current volatility in energy markets. He noted that the recent conflict involving Iran had not significantly altered the inflation outlook, with expectations remaining moderate. Villeroy highlighted that the euro's appreciation has helped offset recent oil price increases, and with inflation slightly below the ECB's 2% target, additional monetary accommodation remains possible. The ECB has already reduced rates to 2% since mid-2024, with markets anticipating another quarter-point reduction in the second half of 2025. Villeroy emphasized the ECB's commitment to a data-driven, flexible policy approach.

Since mid-2024, the ECB has implemented a series of interest rate cuts to stimulate the Eurozone economy. As of June 5, 2025, the key rate was reduced to 2.0%, marking the eighth cut within a year. In March 2025, the ECB projected that inflation would average 2.3% in 2025, 1.9% in 2026, and 2.0% in 2027, indicating a gradual return to the target rate.

Eurozone inflation decreased to 2.2% in March 2025 from 2.3% in February, primarily due to a drop in energy prices and a further easing in services inflation. The euro has appreciated by 8.3% against the US dollar and by 3.9% in nominal effective terms since the previous projections, helping to offset recent oil price increases.

The recent conflict involving Iran has introduced volatility in energy markets, leading to concerns about potential inflationary pressures. However, Villeroy de Galhau noted that this conflict had not significantly changed the inflation outlook, with expectations remaining moderate.

Villeroy de Galhau emphasized the ECB's commitment to a data-driven, flexible policy approach, indicating that further monetary accommodation remains possible if inflation stays below the 2% target.

Further interest rate cuts could lead to lower borrowing costs, potentially stimulating consumer spending and investment. Reduced interest rates may lower financing costs for businesses, encouraging expansion and hiring. Continued low interest rates could result in lower returns on savings, impacting individuals relying on interest income.

The ECB's current series of rate cuts is part of a broader strategy to stimulate the Eurozone economy amid sluggish growth and inflation rates below the target. This approach reflects a continuation of accommodative monetary policies implemented in response to various economic challenges over the past decade.

Villeroy de Galhau's recent statements highlight the ECB's readiness to adjust monetary policy in response to evolving economic conditions. By maintaining a flexible, data-driven approach, the ECB aims to navigate the complexities of the current economic landscape, balancing the need for growth stimulation with the goal of price stability.