ECB: Villeroy Leans Slightly Dovish, Not More Than Usual

Comments from ECB's Villeroy via Bloomberg:

• "The downside risks on the inflation outlook remain at least as significant as the upside risks, and we would not tolerate a lasting undershooting of our inflation target,”"
• "Positive and negative deviations from 2%, if lasting, are equally undesirable,” ....“Let me be clear: we are not ‘keeping our powder dry’ to create a buffer with the effective lower bound."
• The ECB is "in a good place,” but that that position “is not a comfortable one nor a fixed one.”

We consider Villeroy to be one of the more dovish members of the Governing Council. These comments suggest he remains cognizant of the risk of a persistent inflation undershoot, and should be viewed in the context of the ECB's December projections which will include 2028 for the first time.

We doubt Villeroy would argue in favour of a cut as soon as December, but these remarks suggest he remains cognizant of that risk heading into 2026.