ECB may miss 2% inflation target if euro strengthens — Villeroy de Galhau

The European Central Bank (ECB) may miss its 2% inflation target following the euro's sharp rally. This warning came from ECB Governing Council member Franсois Villeroy de Galhau.

The official cited estimates showing that a sustained 10% euro appreciation reduces inflation by 20 basis points annually over the following three years. This could heighten risks of missing the inflation target. Villeroy de Galhau stressed this factor must be taken into account.

Since January, the euro has strengthened by roughly 14%, sparking concerns among some ECB officials after inflation slowed to 2%.

As Villeroy de Galhau previously stated, the ECB must maintain flexibility when making interest rate decisions. Currently, the central bank forecasts consumer price index stabilization at 2% by 2027. According to Villeroy, this gives policymakers room to support the regional economy.