(Bloomberg) -- The European Central Bank must act step by step as it lowers interest rates, according to Chief Economist Philip Lane.
In a speech Monday, Lane called for policymakers to act in an agile manner amid a barrage of risks that include wars and shifts in global politics.
“Remaining open-minded about the speed and scale of adjustments is in fact a valuable strategy across various environments, as different situations may necessitate distinct approaches,” Lane said in London. “This careful, step-by-step strategy enables us to observe the responses of the economy to our decisions and continuously refine our understanding of their impacts.”
Less than three weeks before the ECB’s final policy meeting of 2024, the outlook is clouded by uncertainty. The economy has cooled markedly with some surveys pointing to shrinking activity and the threat of new trade tariffs damping sentiment. Surging wage growth, meanwhile, suggests inflation may not yet be fully under control.
Analysts predict a fourth quarter-point cut of the year in the deposit rate, bringing it to 3%. Investors broadly agree, though see a chance of a 50 basis-point move in light of the softening economy.
Updated projections for growth and consumer prices will steer the ECB’s decision and may also offer some insight into how much further rates will fall.
In an interview with the Les Echos published earlier Monday, Lane said he and his colleagues should be able to reduce rates to a level that no longer restricts economic activity in 2025.
Bundesbank President Joachim Nagel sided with Lane in urging caution, saying said the ECB should only act gradually and mustn’t rush rate cuts, while Gabriel Makhlouf of Ireland echoed his comments on being “open minded.” But others were more explicit about where they think policy should go from here.
Governing Council member Mario Centeno said earlier in the day that borrowing costs should steadily be lowered to 2% or thereabouts, where he sees the so-called neutral rate. His Greek counterpart Yannis Stournaras spoke of a similar trajectory in a Bloomberg Television interview last week.
Lane said he’d prefer that ECB communication refrained from giving guidance about the speed and scale of monetary easing at future meetings.
“It is essential that we are agile in responding to risks that might crystallize and new uncertainties that might emerge,” he said.
--With assistance from Mark Schroers and Joao Lima.
(Updates with Irish central bank chief in eighth paragraph.)
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