ECB’s Villeroy: Too early to declare victory over inflation

Speaking at the World Economic Forum (WEF) in Davos on Tuesday, European Central Bank (ECB) Governing Council member and Bank of France President, Francois Villeroy de Galhau, said that it is “too early to declare victory over inflation.”

Additional quotes

We can see soft landing on both sides of the Atlantic.

Rates shouldn’t be higher than today.

Barring major surprises - we look at the Middle East - our next move will be a cut, probably this year. I will not comment on the season.

We are not calendar driven regarding rate cuts, we are data driven.

We must have solid inflation outlook of around 2 percent if we decide on rate cut.

No haste regarding any rate cut decision, we should be patient.

Market reaction

EUR/USD is little affected by the above comments, holding lower ground near 1.0910, down 0.32% on the day.

ECB FAQs

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

What is Quantitative Easing (QE) and how does it affect the Euro?

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

What is Quantitative tightening (QT) and how does it affect the Euro?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

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