Exclusive: ECB’s Centeno: ‘Let's leave all options open to July’

20 June 2024

By David Barwick – DUBROVNIK, Croatia (Econostream) – The European Central Bank should leave open the possibility of cutting euro area interest rates again at the July monetary policy meeting, according to ECB Governing Council member Mário Centeno.

In an interview with Econostream on Saturday (transcript here) on the margins of the Dubrovnik Economic Conference, Centeno, who heads the Banco de Portugal, said that monetary policymakers could continue to cut rates, given the disinflationary trend and the need to avoid undershooting the inflation target.

Authorities should not be in thrall to the current bumpiness of spot inflation figures, he said, but rather should show confidence.

‘Excluding specific actions beforehand is not consistent with our approach’, he said. ‘So, let's leave all options open to July. And naturally that goes for September, too - let's not tie our hands with anything except … prudency and confidence.’

Being prudent meant not hoping for the convenient dissipation of uncertainty, while confidence described policymakers’ view of ongoing disinflation and how they should act given the disinflation, he said.

‘The baseline is very strong’, he affirmed. ‘It has been like that since the peak of inflation in October 2022. … It has been consistently close to 2% ever since, and that's the confidence that we must now have in our decisions.’

Central bankers therefore ‘cannot stay hostage’ to the ‘completely natural’ bumpiness of inflation as a backward-looking indicator, he said.

Asked where interest rates could go over the course of the next quarters, Centeno said that ‘[w]e cannot risk undershooting’ but declined to predict a specific pace of easing.

‘I can’t look ahead with that degree of precision because of our data dependency, but the disinflation process is well anchored in the economy and compatible with us proceeding in the trajectory that we just started on’, he said. ‘I don't know the pace, but we all know the direction. The direction is simple to gauge, because we all know that the natural rate is lower than the current rate. So that's the direction we must continue in.’

The fact that different Council members came to different conclusions based on the same data reflected different sensitivities to risks, he said.

‘[I]t’s the same data, so there’s no getting around the fact that inflation has come down faster than expected and the economy has finally showed some signs of recovery, which I hope can continue’, he said. ‘But how you feel about the risk, the trade-off over time of holding a given level of interest rates and the impact it may have on our economy, that's the difference.’