(Bloomberg) -- European Central Bank Governing Council member Joachim Nagel expects euro-area interest rates to reach a level that no longer restricts economic activity in the first half of next year as inflation is “well under control.”
“We can certainly lower interest rates a little further,” the German central-bank chief told Germany’s Focus magazine in an interview published on Friday. “In the first half of 2025, we may reach a ‘neutral’ level without risking an increase in inflation,” the magazine cited him as saying.
“We now have the price increase well under control,” Nagel said. Although underlying inflation remains around 2.7%, it “will continue to fall,” he said. “We are now also seeing a moderation of wage settlements. Wage pressure is easing across the entire currency area.”
Policymakers will at the same time continue to be cautious in light of the geopolitical uncertainties that abound, he said, according to Focus.
The ECB last week delivered its fourth interest-rate cut since June and signaled that more quarter-point steps will follow as inflation settles at its 2% target. With weakness in manufacturing starting to spill into services and the labor market showing signs of frailty, the economy would benefit from such support.
The ECB’s outlook for the 20-nation euro zone predicts an expansion of 0.7% this year, followed by 1.1% in 2025.
Inflation risks continue to linger. While the headline rate proved weaker than expected in November, the last month for which data are available, a measure for services still stood at 3.9% — a level policymakers argue still warrants careful monitoring.
--With assistance from Mark Schroers.
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