ECB’s de Guindos: 'Door Totally Open'; We Want to Maintain Optionality

20 September 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Friday said that inflation developments were positive and that the ECB would leave all options open so as to base its next decisions on incoming data.

In an interview with Portuguese weekly Expresso, de Guindos was asked about the possibility of interest rate cuts in each of the two remaining Governing Council meetings this year.

‘It’s true to say that in December, we will have more information than in October. We will have more information and a new round of projections’, he said. ‘But, you know, we have left the door totally open. We want to maintain our optionality, and that will depend on the evolution of the data.’

There were good news emerging from inflation, which was currently slightly above 2%, but falling, he said.

‘We have already cut rates twice, by 25bp each time, and I think that the main message we now want to convey is that inflation is getting closer to our 2% target and we expect it to reach the target at the end of 2025’, he said.

The ECB's projections pointed to a moderation in wage costs, but the outlook for Eurozone productivity was still unclear, he said.

‘We believe that in 2025 there will be a clear moderation in wage increases’, he said. ‘But it will be crucial to see productivity recover, and there is still a big question mark about this.’

Even with price pressures in the services sector accounting for the main risk factor to inflation, the ECB expected inflation to moderate in that sector, he said.

‘The services sector is particularly sensitive to the evolution of unit labour costs and we believe that inflation in the sector will start to fall because we are expecting a moderation in wage agreements and in compensation per employee alongside a simultaneous, significant improvement in productivity’, he said.

Consumers were holding back in expending due to a lack of confidence and a high level of uncertainty, he said, but there were elements to support an economic recovery based on consumption.

‘We believe that with the drop in inflation, households’ real incomes will go up, which will lead to an increase in their purchasing power’, he said. ‘The labour market evolution is positive, which means that consumption will begin to increase over time.’