“Keep options open”: ECB chief economist calls for gradual easing of interest rate policy

“Keep options open”
ECB chief economist calls for gradual easing of interest rate policy

16.09.2024, 15:16

According to ECB chief economist Philip Lane, the European Central Bank (ECB) should gradually loosen its monetary policy and be flexible in terms of the pace. Looking ahead, a gradual approach to reducing monetary tightening will be appropriate if incoming economic data are consistent with the basic assumptions of the ECB forecasts, the Irishman said at an event in Luxembourg. “At the same time, we should keep our options open for the speed of the adjustment,” he added.

According to Lane, faster interest rate cuts could be justified if the data indicate an accelerated decline in inflation or a significantly weaker economic recovery in the euro area. On the other hand, a slower interest rate adjustment would be justified if the risk of inflation is lower than expected or the economy recovers more quickly.

These considerations suggest that we should proceed from meeting to meeting and depending on the data. From the perspective of the ECB's top economist, this will allow the euro central bank to retain its options in both directions and flexibility for its future interest rate decisions.

On Thursday, the ECB cut interest rates for the first time since the monetary policy turnaround in June: the deposit rate, which is crucial for the financial markets and at which banks park funds with the ECB in the short term, was reduced by a quarter of a percentage point to 3.50 percent. At the same time, the ECB Governing Council confirmed that it would not commit itself to a specific interest rate path in advance.