(Bloomberg) -- The European Central Bank must continue to lower borrowing costs, though the pacing of such moves will dependent on incoming data, according to Governing Council member Gediminas Simkus.
Inflation is “calming down” and “its trajectory suggests that further rate cuts must happen,” he told Radio LRT on Friday. “Rates will continue declining, but the speed of cuts will depend on data.”
Speaking a day after the ECB reduced its deposit rate by 25 basis points — the second such move this year — the Lithuanian central bank chief said that policymakers “will need strategic patience.”
Clues on when the ECB will cut next were in short supply on Thursday, with President Christine Lagarde avoiding to committing to a monetary-policy path. Money markets now put the chances of an October step at 20% — down from about 40% earlier this week. People familiar with the situation said the door isn’t fully closed, but it’s unlikely.
For Peter Praet, who was the ECB’s chief economist until 2019, the “best scenario” for the ECB is December. “But December is far away, many things can happen,” he told Bloomberg Television’s Tom Mackenzie on Friday. “So the ECB tried to keep optionality.”
Wages have been an ECB focus for some time, with the latest data — published a week ago — showing that a key measure continued to slow in the second quarter.
“The situation in the labor market is also calming down, but we still need to be careful with further decisions,” Simkus said, adding that there’s “key uncertainty” on services inflation.
His Slovenian counterpart Bostjan Vasle also zeroed in on those price pressures, saying additional monetary easing isn’t pre-determined.
Finland’s Olli Rehn echoed those sentiments.
“The ECB’s decisions are made on a meeting-by-meeting basis, and there is no pre-commitment to an interest rate path,” he said. “We therefore retain full freedom of action and flexibility in making interest rate decisions in all future meetings.”
Speaking separately Friday, Bundesbank President Joachim Nagel said “the inflation outlook is very good.”
“We assume and the data back us up that we’ll reach our inflation target of 2% by the end of next year,” he told Deutschlandfunk. “The portfolio of data is such that it justified yesterday’s rate cut.”
--With assistance from Jan Bratanic and Leo Laikola.
(Updates with Vasle, Rehn starting in eighth paragraph.)
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