by Francesco Canepa
FRANKFURT (Reuters) – Inflation must stabilize below 3% by the middle of next year before the European Central Bank (ECB) can start lowering its key rate, member Yannis Stournaras said of the institution’s board of governors, to Reuters.
The comment from this monetary policy official, known for his accommodating position, underlines the determination of the central bank to overcome inflationary pressures.
It also highlights the disconnect between the ECB and investors, who expect the central bank to start cutting interest rates in April or even March, despite restrictive comments from the ECB president, Christine Lagarde, formulated last week.
“We cannot take this risk: we need to see inflation sustainably below 3% by the middle of the year before cutting rates,” Yannis Stournaras said in an interview with Reuters.
The ECB kept rates unchanged last week and said it forecast average inflation of 2.8% this quarter, 2.9% in the first three months of next year and 2.7% during the second quarter of 2024.
In addition to price growth, Yannis Stournaras said that “labor costs, profits and inflation expectations must all signal a return of inflation to 2%.”
“We will also have to assess the general state of the economy,” he added.
Money markets are currently betting on 150 basis points of rate cuts from the ECB in 2024.
(Report Francesco Canepa, Corentin Chappron, edited by Blandine Hénault)
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