ECB Should Cut Each Meeting Until It Reaches 2%, Stournaras Says

(Bloomberg) -- The European Central Bank should lower borrowing costs at each meeting until it reaches a level that neither restricts nor stimulates economic activity, according to Governing Council member Yannis Stournaras.

“As inflation develops now and as the real economy develops now, I think yes we should have a cut in every meeting from now on until we get to what we call the neutral rate,” the Greek central-bank chief told Bloomberg TV on Thursday. “This is an illusive concept but according to the estimates, it’s about 2%.”

Stournaras said a fourth quarter-point reduction of the year in the deposit rate in December — bringing it to 3% — would currently be the “right response,” while adding that he “cannot say” whether a 50 basis-point move is excluded.

“We still don’t have anything on the table on the other side, we don’t know how markets react, what the Fed will do,” he said.

ECB policymakers are gearing up for their final policy meeting of the year, with investors and analysts agreeing that another quarter-point step is the likeliest outcome after a steeper-than-expected slowdown in inflation.

Most also predict a spate of cuts in 2025, though it remains to be seen how such thinking is affected by the return of Donald Trump to the White House — particularly in light of his plans to slap tariffs on key trading partners.

Stournaras said earlier this week that such levies could weaken European economic activity and even lead to a recession and deflation.

Vice President Luis de Guindos told Bloomberg TV on Wednesday that it’s “crystal clear” that rates will be reduced further “over the next months and quarters,” but officials should be cautious due to the current elevated uncertainty.

Highlighting the lingering dangers, third-quarter negotiated wages jumped by the most since the euro was introduced in 1999, though analysts see such trends moderating next year.

“We expect that to fall in the months to come,” Stournaras said. “We thought it’s one blip but not a permanent increase.”

--With assistance from Sotiris Nikas.