ECB’s Centeno: We’ve Converged to Target; Wrong to Worry About Exactly 2%

22 October 2024

By David Barwick – WASHINGTON (Econostream) – European Central Bank Governing Council member Mário Centeno on Tuesday said that he considered euro area inflation to have converged to the ECB's target and argued against being obsessed with hitting precisely 2% HICP.

In remarks at the Peterson Institute for International Economics, Centeno, who heads the Banco de Portugal, said, ‘We still expect inflation to go up, but probably we will not see inflation in the coming quarters in Europe clearly above 2%, and our forecast points to inflation actually being below 2% after half of 2025.’

HICP of exactly 2%, the ECB’s price-stability target, was ‘something of a statistical nature, and we should not be very worried about that’, he asserted.

Risks of inflation undershooting the ECB’s objective were greater than those of overshooting, and most downside risks were endogenous, he said.

The monetary policy response he expected was thus a continuation of the ‘gradual but steady, predictable path toward more neutral levels for the interest rate', he said.

The neutral rate could be 2% or ‘slightly below’, he said, but this needed to be closely evaluated as the ECB approached these levels.

‘Certainly at 3.25%, which is where we are now, the DFR [deposit facility rate] is still way above the neutral level, so this process has to continue’, he said.

Real economic developments were ‘a problem’, with no investment and thus no growth, he said, calling low confidence and high savings ‘kind of a brake’ on the recovery.

High savings were in principle a good thing, ‘but in this stage of the recovery, it’s not going to help’, he said.

Moreover, there were early warning signs of weakening labour markets, he cautioned, citing a decline in job vacancies.

Centeno called for ‘generating fiscal space’.