(Bloomberg) -- The European Central Bank may be able to keep cutting interest rates as inflation eases and could ultimately lower them to “somewhere close to 2%,” Governing Council member Pierre Wunsch told Nikkei in an interview.
If inflation slows to target earlier than expected, officials can justify “reducing rates in a gradual manner,” he was cited as saying. “It is possible and even maybe likely that we will have to discuss removing restriction,” he said, cautioning against bigger steps.
“If you would suddenly accelerate the rate cuts while domestic inflation is still above 2.5%, I’m not sure we would give a very good signal,” he said. “It might be perceived that we have a much more negative view on the economy.”
The ECB will next set policy on Dec. 12, with a fourth cut of the year expected. While there’s been talk of a half-point move following soft economic data, several officials say they prefer “gradual” steps.
Greece’s Yannis Stournaras wants cuts at every meeting until rates reach 2%, down from 3.25% now. Executive Board member Isabel Schnabel told Bloomberg this week that borrowing costs may be lowered to a neutral level, but acknowledged that it’s difficult to say exactly where that is.
On Donald Trump’s return to the White House, Wunsch said US trade duties could result in a weaker euro and, “if that is so, it is possible that the impact of the tariffs would be slightly inflationary.”
--With assistance from Toru Fujioka.
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