ECB’s Centeno: ‘If We Tighten Too Much, We May End up Below 2%’

28 October 2024

ECB’s Centeno: ‘If We Tighten Too Much, We May End up Below 2%’
Mário Centeno, governor of the Banco de Portugal, at the ECB’s Governing Council meeting in Ljubljana on October 17, 2024. Photo by Adrian Petty/ECB.

By David Barwick – WASHINGTON (Econostream) – European Central Bank Governing Council member Mário Centeno on Saturday warned once more of the danger of overly tight ECB monetary policy.

In an interview with GlobalMarkets, a newspaper published at the annual meetings of the IMF and World Bank, Centeno, who heads the Banco de Portugal, said, ‘One of the risks we see now for economic activity and inflation is if monetary policy transmission dampens demand more than needed.’

‘The best place to be is when inflation hovers around 2%’, he continued. ‘If we tighten too much, we may end up below 2%. And that proved in the past very difficult to overcome. We spent 10 years trying to get inflation [up] to 2% and we failed.’

According to the newspaper, Centeno characterised ECB monetary policy as still tight after 75bp of easing to date.

The ECB should be ‘gradual, consistent and predictable’ in lowering official borrowing costs to neutral, he said.