Central Bank of Ireland governor Gabriel Makhlouf said the European Central Bank (ECB) would need to see “overwhelming” data to make a big interest-rate cut in December, even as he insisted he is “chilled” in the view that inflation will reach the organisation’s 2 per cent target next year.
Speaking to reporters at a Central Bank conference in Dublin on the financial system, Mr Makhouf said that he “wouldn’t go so far as to say” that a fourth rate cut since June is all-but inevitable next month.
“It’s reasonable to assume that we’re on a downward trajectory when it comes to interest rates. Are we going to cut in December or are we going to wait until the next meeting? Well, that will just depend on the data will tell us,” he said, adding that ECB staff will issue fresh inflation forecasts ahead of the governing council meeting on December 12th.
While some governing council members see ECB staff projecting that the 2 per cent rate will be reached as early as the first quarter of 2025, Mr Makhlouf said he is “confident that we are going to meet our target next year” but is “completely chilled” about when during the year.
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“I think all of us should chill out a bit about whether it’s doing to be Q1, Q2 or Q3,” he said.
Short-term debt markets are pricing in a near-20 per cent chance that the ECB will opt for a larger quarter-of-a-percentage point rate cut next month. Traders and economists are confident of at least a quarter-point reduction.
The governor declined, when asked, to comment on the spending plans of various parties ahead of the general election at the end of the month.
“I think all the politicians know what I have said about the economy, about the state of finances, because my letters [to finance ministers] and my comments were all public,” he said.
Fine Gael’s general election manifesto proposes increased spending of €52 billion between next year and 2030, including an extra €2.5 billion to pay for a €60 increase to the State pension in that period. Fianna Fáil has also promised tax cuts and spending increases, more homebuilding and more gardaí in its pitch to the electorate.
Sinn Féin, the largest Opposition party, is set to publish its manifesto on Tuesday.
Mr Makhlouf warned after the €10.5 billion Budget 2025 package was unveiled last month that rule-breaking budget spending over an extended period will aggravate inflation and hit sustainable economic growth. The budget marked the fourth straight year in which spending will breach the 5 per cent growth rule introduced by the Government in 2021.
The governor also told reporters that it was too early to start making decisions on what Donal Trump’s second term as US president might do, when asked if his protectionist agenda, including tariff proposals, might affect the global economy and inflation.
“I do think it would be premature to come to conclusions as to exactly what it is that the new US administration is going to do, and to start making decisions based on that assumption,” he said. “But I’ve been saying for a while now that the global economy is fragmenting. That has implications for the financial wellbeing of everybody.”
Meanwhile, addressing the conference earlier on Monday, Mr Makhlouf said the introduction of a digital euro would ensure the money remains within the control of the public sector in the digital era, rather than private players.
“We recognise that public innovation in payment systems must keep pace with private innovation, otherwise challenges may arise in maintaining financial stability and monetary sovereignty in a digitally disruptive era,” he said.
The ECB is currently in the middle of a two-year preparation phase to lay foundations and rules for a potential digital euro, with a decision due to be taken late next year on the potential issuing of a digital currency. It is expected to launch as early as 2028.
The ECB has insisted that a digital euro would complement, but not replace, physical cash, even if it will function like cash in offering high levels of privacy, wide acceptability as instant settlement and ability to pay for goods and services offline.
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