ECB’s Centeno: Need to Minimise the Risk of Undershooting

19 September 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Mário Centeno on Thursday said that undershooting the inflation target was currently the main risk faced by the ECB.

In an interview with Politico, Centeno, who heads the Banco de Portugal, said, ‘Given the position in which we are today, in the monetary policy cycle, we have really to minimise the risk of undershooting, because that’s the main risk.’

The Governing Council was already gathering new information to inform its next monetary policy decision, he said.

‘I don't think five weeks is a short period of time’, he said, referring to the amount of time between the September and October meetings of the Council.

New data released on Monday, which showed a deceleration in wage growth, were ‘good news for inflation’, he said.

The U.S. labour data, on the other hand, were worse than expected but ‘not a big shock’, he assured.

‘Something that we know from labour economics is that firms synchronise directions more in downturns than in upswings,’ he said.

The ECB monetary policy stance was still restrictive, he said, estimating the natural rate of interest at no higher than 2.5% and possibly as low as 1.5%.

Weak economic growth in the euro area reflected low investment, he said.

‘If we compare the current forecast with what was our forecast at the beginning of the summer 2023, we cut the expectations of investment growth by 80%,’ he said. ‘That's where I am most worried for Europe right now. Investment is not increasing — despite the Next Generation EU push, public investment is booming in most of our countries, but private investment is not following suit.’