ECB’s Lane: No Urgency to Bring Interest Rates Down Quickly

27 June 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Executive Board member Philip Lane on Thursday said the current state of the economy in the euro area, with low unemployment and the perspective of a soft landing, made it unnecessary to hurry with monetary policy easing .

In an episode of The ECB Podcast recorded on 18 June, Lane said, ‘The single biggest economic problem would be if we saw unemployment rising. We don’t have that. I think that does mean the urgency around the world of bringing rates down quickly, we don’t have that context.’

To bring inflation to the target in a timely manner, a restrictive policy stance would still be necessary, he said.

‘So the assessment is: to complete the journey, complete the return to 2% going from the mid-twos to 2%, still needs, I think for some time, a restrictive interest rate’, he said. ‘But I think that keeping it at 4% for too long would maybe carry its own risks. So it’s a careful step to go from 4[%] to 3.75[%].’

The ECB needed to take its time to ensure that inflation would come back to target, while taking into consideration side effects such as weak economic growth and low investment, he said.

The speed of further interest rate cuts would be data-dependent, given the high level of uncertainty, he said.

‘The no pre-commitment is another way of saying the central bank will be agile, we will be responding to the information that comes in for every meeting’, he said.

The Governing Council would be ready to respond to both upside and downside surprises on inflation, he said.

‘We are ready. If there are upside surprises, clearly, we’re going to do less’, he said. ‘We’re ready if there are downside surprises where we can move more quickly.’