ECB to keep options open in face of undershooting risk, Villeroy says

PARIS (Reuters) – The European Central Bank is keeping its options fully open at upcoming interest rate meetings as the risk of undershooting its inflation target is now as big as of overshooting it, ECB policymaker Francois Villeroy de Galhau said on Friday.

The ECB cut interest rates for the third time this year on Thursday as it grows more confident inflation is under control but less confident in the economic outlook.

Villeroy told journalists that inflation should reach the ECB’s 2% target earlier than expected next year and that it should now be as attentive to the risk of durably undershooting it as it has been to exceeding it.

Thursday’s quarter-point cut brings the rate that the ECB pays on banks’ deposits down to 3.25%. After the move, money markets were almost fully pricing in three further reductions through next March.

“The direction is to my eyes clear – we should continue to cut our restrictive monetary policy in an appropriate way,” Villeroy said.

“But the pace must be guided by agile pragmatism. In an uncertain international environment, we have total optionality for the upcoming meetings,” he said.

Villeroy said the ECB would focus on the data flow, while looking through likely volatility in the short term, and take into account forward looking indicators and forecasts.