(Bloomberg) -- The European Central Bank should avoid outsized moves in lowering interest rates, according to Governing Council member Mario Centeno.
“We have to be cautious — maintain gradualism in decisions,” the Portuguese official told reporters in Lisbon on Tuesday. “The most important word in economic policy is ‘gradualism.’ Big steps usually give big surprises and we shouldn’t do that.”
The ECB is widely expected to cut borrowing costs rates when policymakers meet next week, with Centeno acknowledging that the “process of lowering rates is ongoing.”
That’s partly due to inflation, which last month dropped below the ECB’s 2% goal for the first time since 2021.
“We knew that the inflation rate in September would be lower, but it was lower than the ECB and even the markets predicted,” Centeno said. “And this means that the markets today have a position regarding next week’s ECB decision that is different from the one that prevailed a few weeks ago.”
While the Federal Reserve last month went for a half-point move, the ECB has so far stuck with traditional quarter-point steps.
Markets are betting that the ECB will continue to lower its deposit rate in such increments, predicting six cuts by the end of 2025 — including at the next two meetings. That would bring the deposit rate to 2% from 3.5% now.
“Monetary policy has begun the cycle of interest rate cuts,” Centeno said. “It will be faster than what we had on the table in June.”
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