(Bloomberg) -- The European Central Bank must make sure not to keep interest rates too high to avoid inflicting permanent damage on the euro-area economy, Executive Board member Piero Cipollone said.
“Imposing more restriction than necessary on the economy in the short term could have transitory and also permanent costs,” he warned in a speech in Ditchley Park, UK. “This would reduce economic potential, and thus affect the speed limit of the economy — that is, the level at which GDP growth becomes inflationary.”
Cipollone argued that the surprisingly strong third-quarter growth was boosted by events such as the Olympics, and that it remains to be seen whether the recovery will firm up. Growth is still uneven across sectors, he added.
The ECB is widely predicted to continue its rate-cutting campaign in December after inflation cooled and concerns about the economic outlook increased. Donald Trump’s election win presents a major source of uncertainty, adding to geopolitical risks in Ukraine and the Middle East.
“The prospect of higher trade tariffs being implemented by the US could significantly weigh on activity, especially in manufacturing, because of the impact on euro area confidence, exports and investment,” Cipollone said.
The European Commission predicted earlier on Friday that economic expansion will pick up to 1.3% next year from 0.8% in 2024 as consumers benefit from rising incomes and lower inflation rates. Officials expect the target for price-growth to be hit in late 2025.
“The current balance of risks suggests that we can and should reduce further the current level of monetary policy restriction,” Cipollone said. “The pace and extent of this reduction will depend on the incoming data.”
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