Exclusive: ECB’s Šimkus: ‘Quite Unlikely’ We’ll Cut Rates in October
3 September 2024
By David Barwick and Marta Vilar – VILNIUS (Econostream) – European Central Bank Governing Council member Gediminas Šimkus on Monday delivered a clear endorsement of a rate cut in September but deemed further easing as soon as October, as well as a step of more than 25bp, ‘quite unlikely’.
In an interview with Econostream (transcript here), Šimkus, who heads the Bank of Lithuania, said that the market’s view of the likelihood of an October cut, approximately 40%, did ‘not correspond to the data’, with disinflation generally proceeding as predicted and ECB monetary policy very appropriate for developments.
‘And while I have not seen the newest macroeconomic projections yet, I don't believe that they will change substantially, because the data have been more or less in line with what we expected’, he said. ‘So, we still believe that we are gradually and predictably converging to the 2% inflation target in the second half of next year.’
Even if the updated macroeconomic projections were to show 2% inflation in the euro area reached a little later than the current forecast of 4Q 2025, it ‘doesn't change the big picture’, he said.
The ECB was neither late to act nor in danger of falling behind the curve, according to Šimkus. ‘For the cut in September I see a quite clear case. For cutting in October or by more than 25bp, I find it quite unlikely.’
A September rate cut was supported by ‘many compelling arguments’, he said. As for whether the next step thereafter would be better taken in October or December, ‘I would say that for a December decision we will definitely have more of the data that we need’, he said.
In contrast to the inflation situation, characterised by a ‘very clear disinflationary trend’ and ‘a lot of good news’, growth was structurally ‘sluggish’, with risks generally tilted downwards, he said.
‘All this clearly indicates that it’s appropriate to ease monetary policy’, he said. ‘By how much and in exactly which month – time will tell.’
With reinvestments under the pandemic emergency purchase programme (PEPP) to be discontinued at the end of the year, there was no pressing need to further accelerate the shrinking of the ECB’s balance sheet, for example by outright selling of assets, he said.