ECB’s Lane: Will Consider Cutting Rates When Disinflation Is Confirmed

25 March 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Executive Board member Philip Lane on Monday said that when there was confirmation that inflation was converging to the 2% target, the Governing Council would consider cutting interest rates.

In a podcast on the ECB's website, Lane said that when the disinflation assessment was confirmed, ‘then we will start looking more closely at reversing some of the rate increases we’ve made.’

‘[W]e do think there will be more progress this year, and then we think in the next year and the year after, inflation should stabilise around our 2% target. I think this is a good baseline and essentially what we decided is in these weeks from that [March] meeting, we need to keep on checking this assessment’, he elaborated.

The disinflation process had been developing well, he said, and eventually the Governing Council would have to ‘make a judgment call’ to decide if the ‘improvement in inflation will allow us to roll back some of the rate increases’.

‘So what I would say is, good progress, there are still some questions to answer, and as the data teaches us about the open questions, then we will move forward’, he said.

Despite being confident that the normalisation of wages was ‘on track’ currently, ‘it’s always good to double-check with the incoming data’, he said.

‘We’ve seen deceleration in the last months of ’23, we’ve seen deceleration in the opening weeks of ’24, but we need to see more evidence of that’, he said.

Asked about the ECB’s revised operational framework, he said it would help the banking system prepare for the future.

‘[W]e want our operational framework to deliver the commercial environment in the money market needed to bring the economy where we want it to go in terms of inflation’, he said. ‘And we think this system, this operational framework will do that.’