Francois Villeroy de Galhau, head of the Bank of France and a member of the ECB Governing Council, indicated that the European Central Bank may lower its deposit rate to 2% by summer. He mentioned that current projections suggest this rate could be achieved by mid-year.
On January 30, the ECB cut its deposit rate by 25 basis points to 2.75%. Policymakers have indicated that they may consider another reduction in March, driven by concerns over economic growth surpassing worries about inflation.
If these expectations hold, it would mark a shift in monetary policy that traders will need to adapt to quickly. A deposit rate of 2% by summer would mean a gradual adjustment, rather than abrupt movements, which often provoke stronger reactions in financial markets. Given that the ECB has already lowered rates once this year, additional moves in the coming months would reinforce the idea that policymakers are prioritising economic stability over short-term price pressures.
Francois is not alone in this sentiment. Several within the Governing Council have signalled openness toward bringing rates lower if economic conditions warrant it. The fact that some are already discussing a cut in March indicates a growing sense that the current rate environment may be less sustainable than previously thought. This stands in contrast to previous months, when inflation concerns dominated discussions. If market participants were expecting prolonged caution from central bankers, this shift alters those assumptions.
The decision in January to lower the deposit rate to 2.75% was not unexpected, but it set the stage for what may follow. If policymakers follow through with another cut in March, and forecasts remain aligned with Francois’ expectations, then positioning for a 2% rate by summer would be the natural course. Markets tend to price in rate adjustments well in advance, and traders will have already begun shifting expectations accordingly.
Recent data has fueled speculation that economic weakness is now the central concern. Inflation, while still a talking point, appears to be losing its grip on policy discussions. If this continues, upcoming ECB statements will likely reinforce a narrative that prioritises growth. By the time the next rate decision approaches, the debate may no longer centre on whether to cut, but on the pace at which reductions should occur.
If expectations become reality, then reactions across asset classes may follow a predictable pattern. Yields on European bonds, which have already begun adjusting, could continue their downward trajectory. The euro may see pressure if easing accelerates faster than in other regions. Equity markets, particularly rate-sensitive sectors, may find support if borrowing costs shrink further. Each of these elements feeds into how traders approach positioning in the short term.
With ECB policymakers hinting at fewer obstacles to further rate cuts, any deviation from these expectations could cause short-term volatility. A decision in March that does not align with what has been signalled so far would prompt repositioning. If, however, rate reductions proceed as indicated, then a steady adjustment across markets would be more likely.
The coming weeks will reveal how committed central bankers are to this trajectory. Speeches, economic indicators, and inflation prints will all serve as checkpoints. The reaction to each new piece of information will shape market dynamics well before policymakers make their next move.
