Good news for future borrowers. The governor of the Bank of France, François Villeroy de Galhau, said on Friday that there will be “further rate cuts next year”, in the wake of the third consecutive reduction in monetary yield by the European Central Bank. “Others, plural,” he clarified, without wanting to provide further details: “We are not committed to a rate trajectory in advance.”
The ECB lowers rates again
“We have lowered rates for the fourth time this year and, to be clear, further cuts are expected next year.”
🎤 François Villeroy de Galhau, governor of the Bank of France pic.twitter.com/ALzeiDhQTk
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The governor recalled that “the European rate, at 3%, is now significantly lower than the English or American rate, which exceeds 4.5%”. “There is no upfront commitment to a rate cut, but I note that collectively we are quite comfortable with financial markets’ interest rate forecasts for next year,” he said. “It doesn’t mean commitment, but technically it’s important.”
The European Central Bank lowered key rates again on Thursday, bringing the main reference rate to 3% (a drop of 0.25 points). This thus amplifies the turning point adopted to reduce the financing costs of families and businesses. This cycle follows a period of drastic monetary tightening to address high inflation, linked to the war in Ukraine and the post-Covid recovery.
“We would go towards the neutral rate », between 1.7 and 2.5%
When asked about the scope of the next rate cut, François Villeroy de Galhau recalled that there are “three keys of the piano on which we can play”: “magnitude”, “communication” and “rhythm”.
In terms of communication, “yesterday we removed the restrictive prejudice”, which means that “we prefer to move towards what is called neutral rate “, which is “a kind of equilibrium rate when we want to be neither restrictive nor accommodative and we believe we are on the right inflation trajectory.”
“Estimates for this neutral rate are between 1.7 and 2.5%,” so “we are still significantly above” this level and “there is room” for further reductions.
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