While both growth and inflation face downside risks, ECB policymakers are divided over whether they need to consider a sharp half-percentage point rate cut in December.
The comments came shortly after the European Central Bank announced its first consecutive interest rate cuts in 13 years at its October meeting.
The move marks the central bank’s third quarter rate cut this year, a measure that markets have fully priced in after policymakers said inflation risks were easing and growth prospects were softening.
“The fact is that the September inflation numbers were very low, well below what we expected,” Mario Centeno, governor of the Bank of Portugal, told CNBC’s Karen Tso on Wednesday.
“We need to build that into our story,” Centeno said. “Then we need to look at the data that’s coming in, the trends in the data that we’ve been observing, and certainly looking at 50 basis points because we’re still relying on the data and the data that we’re getting is pointing in that direction. “
A cyclist rides along the road under a railway bridge near the European Central Bank (ECB) headquarters in Frankfurt am Main in western Germany, before the ECB’s press conference on euro zone monetary policy on July 18, 2024.
Kirill Kudryavtsev | Kirill Kudryavtsev AFP | Getty Images
Recent Eurozone Inflation Revise It was 1.7% in September, down from the previous official estimate of 1.8%. This compares with a 2.2% increase in August.
September was the first month since June 2021 that euro zone inflation fell below the European Central Bank’s 2% target, marking the end of years of excessive price growth and reinforcing expectations of further interest rate cuts in the near future.
Dutch ECB Governing Council member Klaas Nott said together with Centeno that a half-percentage point interest rate cut would not be ruled out at the central bank’s December meeting. But he added that such a move would require some deterioration in the data.
“I think we’re very confident that inflation will return to our 2% target sometime next year,” Knott told CNBC on Wednesday.
“I would also say that I think the risks around that baseline are reasonably controlled,” he added.
“So if that does happen, and if the December forecast continues to confirm that, then we will be able to gradually take the brakes off and continue to cut rates until we reach neutral territory where we are no longer simulating the economy and we are no longer Slow down the economy.
“Look at the data”
European Central Bank President Christine Lagarde said last week that central bank policymakers only discussed the merits of a 25 basis point rate cut at the meeting, rather than a more substantial 50 basis point cut.
“I’m sure some of my colleagues will support a significant rate cut and some will not,” Austrian central bank president Robert Holzmann told CNBC on Wednesday. “For my part, I would say I will look at the data. “
Holzman said it was inevitable that policymakers would make the case for a deeper rate cut in December, but he argued that the ECB’s recent quarter-percentage point move was a “precautionary” move and that the central bank may still need to take Interest rate cuts.
“If things are as bad as some are claiming, we could have 25 more, (but) 50, I’m saying right now based on the data, no,” Holzman said.
The ECB has repeatedly warned that inflation could rise in the coming months before falling to its target next year.
With inflation falling in many high-income countries, several major central banks have recently taken steps to ease monetary policy.
Still, the International Monetary Fund said on Tuesday that while the global fight against inflation “Almost a win, “downside risks” are increasing and now dominate the outlook.
‘We’re definitely going to see some cuts’
“We are clearly moving in the direction of easing monetary policy,” Gediminas Šimkus, a member of the ECB’s Governing Council and president of the Central Bank of Lithuania, told CNBC on Wednesday.
“Well, at this point, I can say unequivocally that in the upcoming meeting, we will definitely see some cuts. But what the cuts are, how deep the cuts are, or if they happen at all, will depend on the data,” he said added.
Asked whether market participants were comfortable with the ECB pricing in back-to-back interest rate cuts around the middle of next year, Simkus said he was uneasy about calls for significant rate cuts.
“I don’t think these super cuts are warranted unless we really see something unexpected and bad in the data. So far, I don’t think that’s going to be the case,” he added.
ECB policymaker and Bundesbank President Joachim Nagel said he did not want to speculate on the potential size of further rate cuts.
“We live in a very uncertain environment, so we have to wait for new data before we can make a decision,” Nagel told CNBC on Wednesday.
—CNBC’s Jenni Reid contributed to this report.
About The Author
