(Bloomberg) -- European Central Bank Governing Council member Mario Centeno said larger reductions in interest rates can be debated if some of the dangers to the region’s economy come to pass.
The Portuguese official said Friday that he’d prefer to move “gradually,” which he defined as steady and predictable steps. But with risks including US trade tariffs casting a shadow, more aggressive action than the quarter-point moves seen so far may become necessary.
“If the data confirm that the risks to the downside in growth materialize, that the numbers that we still are expecting for inflation this month go in the same direction, we can certainly discuss and be open to different steps” he told Bloomberg Television.
“But what is more important is to send a message of we are doing our job, we are moving interest rates in the right direction and we will continue to do so as long as data requires,” he said.
The comments come less than three weeks before the ECB next meets to set interest rates. While inflation probably quickened this month, bets on a 50 basis-point cut in borrowing costs are building after disappointing data Friday on the euro zone’s private-sector business activity.
Dovish officials like Greece’s Yannis Stournaras and Italy’s Fabio Panetta were already intensifying calls for a further rapid lowering of borrowing costs to a neutral or even expansionary level to support growth and prevent inflation dipping below the 2% goal.
While hawks also envisage more rate cuts, they urge caution on the pace and magnitude given still-elevated domestic price pressures, mainly in the services sector. Record-high wage growth in the third quarter underscored the concerns.
Centeno said officials must focus on preventing inflation from falling short of the target, as it did in the years leading up to the pandemic. He estimated the neutral level of rates, which neither stimulates nor restricts the economy, at 2% or lower.
“The path going forward will be to reduce the level of interest rates,” Centeno said. To avoid inflation slipping below 2%, “we need a stronger economy.”
--With assistance from Joao Lima.
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