On Friday, December 15th local time, the European Central Bank's governing committee, Francois Villeroy de Galhau, acknowledged that the bank's next move is indeed to cut interest rates, but patience is still needed.
Villeneuve, who also serves as the Governor of the Bank of France, said, "Unless there is a shock or unexpected event, interest rate hikes have come to an end, but this does not mean that interest rates will be cut quickly." He added that decisions on whether and when to cut rates are guided by economic data, not changes in financial markets, and there is currently no specific timetable.
Villeneuve called on the outside world to maintain confidence and patience, a statement that coincides with European Central Bank President Lagarde. On Thursday, the European Central Bank announced that it would maintain its benchmark interest rate unchanged. Lagarde said at the press conference that it was too early for investors to bet on a rate cut soon, and "this is not the time to relax vigilance."
Estonian Central Bank Governor Madis Muller also holds a similar view, stating earlier in the day that market views were "a bit too optimistic".
Villeneuve said that the process of de inflation is faster than expected, mainly because the transmission of monetary policy is faster than expected. "In other words, monetary policy is effective." He also pointed out that the "last mile" of de inflation may not be so difficult.
When discussing the inflation outlook, the European Central Bank removed the previous statement in its monetary policy outlook that inflation may be "too high for too long", indicating that the European Central Bank's confidence in inflation returning to its 2% target in the medium term has further strengthened. Villerova believes that this decision is crucial.
"There are peaks and valleys in the mountains, as well as plateaus," Villerova said. "Today we are on the plateau, and we need to give ourselves some time to appreciate the scenery and experience the effects of monetary policy."
However, the latest economic data, combined with the Federal Reserve's statement, is still prompting the market to actively price European interest rate cuts.
Recently, data jointly released by S&P Global and Hamburg Commercial Bank (HCOB) showed that the Eurozone PMI fell further to 47 in December, falling short of market consensus expectations. In addition, the manufacturing PMI remained at a low level of 44.2.
The report states that economic activity in the eurozone is declining at a faster rate. The rate of decline in economic output throughout the fourth quarter has reached its peak in the months following the initial outbreak of the pandemic in 2020. If we don't consider the period of the epidemic, the speed of economic data decline in Europe can reach the fastest in nearly 11 years.