By Paul Hannon


The European Central Bank is more likely to lower its key interest rate over the next six months than raise it, unless the eurozone faces a major new shock such as an escalation of the military conflict in the Middle East, the head of the Bank of France said Thursday.

The ECB lowered its key interest rate for the eighth time earlier this month, and indicated that it is nearing the end of that cutting sequence. Since then, Israel has launched a series of attacks on Iran, which has retaliated. The conflict has pushed the price of oil sharply higher, which could revive inflation in the eurozone.

In a speech in Italy, Francois Villeroy de Galhau said the central bank's response to those developments should be determined by the effect on inflation expectations, which have so far been unmoved. He also said that the euro's recent appreciation against the dollar would help offset some of the impact of higher oil prices on inflation.

"Barring a major exogenous shock, including possible new military developments in the Middle East, if monetary policy were to move in the next six months, it could be more in the direction of accommodation," Villeroy, who is a member of the ECB's governing council, said.

Villeroy said investors see a greater risk that inflation will settle below the ECB's 2% target than remain above it.

"In such a context, we need to remain alert and agile, in all our next meetings," he said. "A neutral rate and a terminal rate are two different animals."


Write to Paul Hannon at paul.hannon@wsj.com


(END) Dow Jones Newswires

06-19-25 0454ET