ECB policymaker signals willingness to weigh interest rate cuts
ECB governing council member Mario Centenotold the World Economic Forum in Davos: “We should definitely avoid undershooting inflation.”
The European Central Bank mustn’t let inflation dip below its target, governing council member Mario Centeno has warned — further signalling his openness to consider lowering interest rates sooner than most of his colleagues.
“We need to avoid that — the goal is 2% and we need to carry a policy trajectory that takes us to 2%,” the Portuguese official told Bloomberg Television from Davos. “We should definitely avoid undershooting inflation,” he said.
Speaking at the World Economic Forum in Davos, Mr Centeno highlighted that the growth in consumer prices has surprised to the downside “quite a bit”.
He said that the eurozone economy has been struggling for more than a year, with this quarter also likely to be “challenging”.
Looking past a recent uptick in price gains, he stressed that the aim is “to have inflation at 2% in the medium term. It’s not in February, it’s not March — it’s the medium term”.
Mr Centeno is something of a lone voice among ECB policymakers so far, having suggested earlier that monetary easing can maybe begin before mid-year.
Most of his colleagues want to wait for crucial data on wages, which are only expected around May — making June the earliest meeting at which the deposit rate could be lowered from its current 4%.
Bundesbank president Joachim Nagel also told Bloomberg Television that summer may be an appropriate juncture to consider lower borrowing costs.
His Austrian counterpart Robert Holzmann even raised the prospect of no cuts at all this year, in light of geopolitical tensions — particularly in the Middle East — that could boost inflation.
Mr Centeno said that after months of declines in real wages, there’ll be a gradual catch-up over time — but that such a development is nothing to worry about.
“I don’t see many reasons for concern there, honestly,” he said. “Wage developments in Europe will be compatible with lower price pressures.”
Investors are betting on six quarter-point rate reductions in 2024, starting in April. Economists in a recent Bloomberg poll are more cautious, predicting four kicking off in June.
Mr Centeno declined to comment on the wagers, saying only that “markets have their own perspective”.
Eurozone inflation picked up to 2.9% from a year earlier in December from 2.4% the previous month, but it’s widely expected that disinflation will continue over the course of 2024. An ECB survey published on Tuesday showed consumers’ inflation expectations at their lowest in more than 18 months.
Mr Centeno underlined that officials would continue to base their decisions on incoming economic numbers.
“We are data-dependent — we are not calendar-dependent,” he said. “We need to remain data-dependent so we remain credible," he said.
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