ECB’s de Cos: Data to Determine When to Start Reducing Interest Rates

2 January 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Pablo Hernández de Cos on Tuesday said that data developments were decisive for the ECB to start cutting interest rates.

In an article published in the annual edition of Spain 2024 EY Insights, de Cos said, ‘The question of how long it will be necessary to maintain interest rates at the current level, before starting to gradually reduce them, will depend on future developments in the data, in a context in which the level of uncertainty remains elevated.’

The available data and projections showed inflation continuing to slow down, he said. ‘In particular, the transmission of monetary policy has been surprising us for its strength, which, if extended in the coming years, would translate into lower growth and inflation.’

Labour costs and business profits were closely monitored to determine the right reaction, he said.

‘[I]n the first months of 2024, abundant information will be received about the new [labour] agreements, which will allow an analysis of the direction of said salary pressures’, he said.

Uncertainty was still high, he said, which required the ECB to ‘remain very vigilant and not let our guard down to promptly detect any risk that affects the inflation outlook.’

‘This way we can avoid both insufficient tightening, which would prevent the achievement of our inflation objective, and excessive tightening, which would unnecessarily harm activity and employment’, he said.