ECB urged not to make big interest rate change
The European Central Bank, which makes monetary policy for the eurozone and the European Union, should continue to incrementally cut interest rates and not be in a hurry to try to stimulate growth, Bostjan Vasle, one of its policymakers, has told the Reuters news agency.
Vasle, who is in charge of Slovenia's central bank, made the comment after some of his fellow policymakers said the time could be ripe for the bank to make a large, 50-basis-point cut in December, and for it to quickly bring rates down to the level where they can stimulate growth.
Vasle said such thoughts should be kept in check for the moment because there are still lingering uncertainties about inflation.
"We should keep going to neutral in measured steps," Reuters quoted him as saying on the sidelines of International Monetary Fund and World Bank fall meetings in the United States. "There is no urgency in discussing undershooting the target or going below the neutral rate. These are not current issues."
So far this year, the bank, which is also known as the ECB, has cut interest rates three times. Some investors have predicted the next cut, in December, could be around half a percentage point, which would be twice the size of previous cuts. The ECB's main interest rate currently stands at 3.25 percent.
The measured approach so far this year saw inflation ease back down to below the ECB's 2-percent target last month. But economists are expecting it to edge back up again in the closing months of 2024, which is why Vasle said the ECB should remain cautious. He noted that inflation in the service sector remains stubbornly high. Additionally, wage growth, which is another important lever in the fight against inflation, has remained higher than desired.
Vasle said, with inflation still a worry, he would like to see the bank keep interest rates in the "neutral" position, where they neither slow nor stimulate growth.
"By lowering interest rates further, we'll be at the upper limit of the neutral rate estimates," Vasle said. "Once we get there, it may be appropriate to align our language on the need to keep rates restrictive."
However, some ECB policymakers do not share his cautious approach.
Mario Centeno, who runs Portugal's central bank, told CNBC this week: "Certainly, 50 basis points can be on the table because we continue to be data dependent and the data we are getting points in that direction."
Centeno told the broadcaster he thinks a half-point interest rate cut should, therefore, be considered in December.
Inflation in the eurozone stood at 1.7 percent in September after having been 2.2 percent in August. It was the first time inflation had dipped below the ECB's 2-percent target since June 2021.
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