ECB Risks 2% Undershoot If Euro Strength Persists, Villeroy Says

European Central Bank (ECB) Governing Council member François Villeroy de Galhau has cautioned that a continued appreciation of the euro could hinder the ECB’s ability to reach its 2% inflation target. In a recent statement, Villeroy emphasized that while the central bank remains firmly committed to achieving price stability, the strong performance of the euro against other major currencies may act as a drag on inflation. A stronger euro tends to lower the cost of imported goods and services, thereby reducing inflationary pressure within the eurozone. This dynamic could pose challenges for the ECB as it seeks to maintain momentum in driving inflation back to its target level after an extended period of subdued price growth. Villeroy added that exchange rate developments are being closely monitored by policymakers, as they are a key factor influencing the outlook for inflation. While not calling for immediate intervention, he highlighted the need for vigilance in case currency trends begin to significantly interfere with the ECB’s monetary policy objectives. This warning comes at a time when markets are closely watching the ECB’s next moves on interest rates, as well as its broader strategy for navigating a complex economic environment marked by slowing growth and persistent uncertainty.

ECONOMICS