ECB’s Centeno says rate cuts should start sooner rather than later
Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration
By Sergio Goncalves and Andrei Khalip
LISBON (Reuters) — The European Central Bank (ECB) should start bringing down interest rates sooner rather than later, and in small steps rather than abruptly, ECB Governing Council member Mario Centeno told Reuters.
The ECB held its key rate at a record-high 4% on Thursday, a decision Centeno agreed with despite not having voting rights this time. ECB chief Christine Lagarde said the consensus around the table was that it was «premature to discuss rate cuts».
Some ECB policymakers have suggested they need to wait for first-quarter wage data in May to see if second-round inflation effects will materialise, but Centeno considered that to be unnecessary as there were no signs of such effects after two years of close monitoring.
«There is a lot more information, and (being) data-dependent is not (being) wage-data dependent…we don’t need to wait for May wage data to get an idea about the inflation trajectory,» he said in an interview.
He saw «a lot of evidence that inflation is falling in a sustained way» towards the medium-term objective of 2%, with surprisingly strong declines lately after the dissipation of «almost all» shocks that had propelled prices, such as energy costs and supply restrictions.
In the absence of any new price shocks, 4% is the ECB’s terminal rate, meaning the next move should be a cut.
«We can react later and more strongly, or sooner and more gradually. I am completely in favour of gradualism scenarios, because we have to give economic agents time to adapt to our decisions,» he said, hoping for a continuous, sustainable trimming, and seeing 25 basis-point steps as «a good metric».
He warned against the ECB holding its cards until the last minute, which «is more typical of games rather than monetary policy», and also cautioned that potential deviations below the 2% medium-term inflation target «are as punishable as deviations above it.»
«The ECB has to be, from that moment on, also a source of stimulus for economic growth in the euro area,» Centeno said, adding that growth needs to be based on reforms to increase productivity, on fiscal stability and other factors contributing to financial stability.
