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Investing.com - The European Central Bank is on track to ratchet inflation in the Eurozone back down to its 2% target level and has room to lower interest rates further in response to a tariff-fueled slowdown in growth, according to the head of the Bank of France.
Francois Villeroy de Galhau said during a radio interview that the 2% level should be reached, adding "that means one important thing: We still have room to lower interest rates."
Inflation in the Eurozone currency area decelerated to 2.2% in March from 2.3% in the prior month, leaving it marginally above the ECB’s target level. Consumer price increases are expected to cool further to 2.1% in the twelve months to April, economists’ predictions of data due out on Thursday showed.
The ECB cut interest rates at latest meeting earlier this month in an attempt to boost a Eurozone economy that was struggling even before the expected hit from U.S. tariffs. Its benchmark deposit rate was slashed by 25 basis points to 2.25%, the seventh reduction in a year, while the rate on its main refinancing operations fell to 2.40% and its marginal lending facility dropped to 2.65%.
The euro area economy has been building up some resilience against global shocks, the central bank said, but the outlook for growth has deteriorated owing to rising trade tensions.
"Increased uncertainty is likely to reduce confidence among households and firms, and the adverse and volatile market response to the trade tensions is likely to have a tightening impact on financing conditions," the ECB said at the time. "These factors may further weigh on the economic outlook for the euro area."
Markets are widely predicting that the ECB will lower rates once again at their next meeting in June.
Villeroy argued that, with the tariffs seen denting once-solid forecasts for growth in the U.S., Europe now has the opportunity to forge its "economic independence" from America and bolster its role in the global economy.