The head of the Bank of France, Francois Villeroy de Galhau, has suggested that the European Central Bank (ECB) should lower its key interest rate. This recommendation comes in response to the rise in U.S. tariffs announced on April 2.
Last week, U.S. President Trump imposed an additional 20% tariff on imports from the European Union. This is in addition to new duties on automobiles, aluminum and steel. Economists predict that these measures will likely weaken growth in the eurozone as exports slow down.
Villeroy de Galhau stated in an interview with French newspaper Le Monde that there is still room for rate cuts. He argued that changes since April 2 suggest an immediate reduction is necessary.
The ECB had lowered borrowing costs for five consecutive meetings up until last month. However, records from the most recent meeting indicate that members considered pausing this trend as an option. The April 2 tariffs seem to have influenced this thinking.
Before the tariff increase, policymakers were uncertain about its potential impact on inflation. They had anticipated that the U.S. dollar would strengthen against the euro, which would increase the prices of many goods and services imported by the eurozone.
Contrary to expectations, the euro has strengthened against the dollar since the tariffs were announced. Villeroy de Galhau believes this will help keep inflation in check, which he expects to stay close to the ECB’s 2% target.
Villeroy de Galhau, a member of the ECB’s governing council, pointed out that the appreciation of the euro was probably the biggest surprise in the market’s reaction. He identified this as a factor in controlling inflation.
He also predicted that prices will likely follow a different trajectory in the U.S. due to the imposed tariffs, potentially leading to an inflationary shock.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
