Central Bank governor Gabriel Makhlouf has said he is comfortable with just one more ECB) interest-rate reduction this year as he needs more time to gain confidence inflation is headed to the 2 per cent target.
“I am comfortable with expectations of another cut,” Mr Makhlouf said on the sidelines of the European Central Bank’s Forum on Central Banking in Sintra, Portugal.
“I think two cuts today, at the beginning of July, is probably going a little bit too far. I’m not saying I’d rule it out.”
Investors are pricing in at least one, but more likely two more ECB interest rate reductions by December after seeing inflation fall from 10 per cent in late 2022 to just 2.5 per cent last month.
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But Mr Makhlouf, a member of the ECB’s governing council, struck a more cautious tone in an interview with Reuters, even though he expected rates to fall eventually.
The ECB began undoing its steepest ever streak of interest rate hikes last month but president Christine Lagarde said the central bank for the euro zone is in no hurry to lower borrowing costs further as progress from here appeared to be slower.
Data on Tuesday showed inflation in the 20 countries that share the euro slow to 2.5 per cent in June from 2.6 per cent a month earlier.
Mr Makhlouf said he was “pleased” with the data “because it confirms the direction that we are moving in” but he stressed services inflation remained the “number one issue of focus” after a second straight 4.1 per cent increase.
The ECB has singled out wages, which are finally catching up with inflation after falling behind them in 2021-22, as the key driver of prices in the services sector and Mr Makhlouf said he and colleagues should “allow time” to see more data.
“I expect interest rates to be lower than they are today if we continue to be successful, as I expect us to be successful, in achieving our 2 per cent target in a sustainable manner,” he said. “The pace at which that happens will depend and where we end up will depend.” – Reuters
