ECB’s Makhlouf Rejects 50BP Rate Cut in December; Would Take ‘Overwhelming’ Evidence

18 November 2024

By David Barwick – DUBLIN (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Monday said that he would need a great deal of convincing to support a 50bp rate cut by the ECB at the upcoming monetary policy meeting.

Speaking to journalists on the margins of the Financial System Conference 2024 of the Central Bank of Ireland, which he heads, Makhlouf said in response to a question about his willingness to entertain a relatively large rate move on 12 December that ‘it would take … quite some persuading for me to sort of “leap”.’

‘The evidence would have to be pretty overwhelming’, he continued. ‘And at the moment … I am still a believer in a prudent and cautious approach. Policy is working, we are clearly on track to achieve our target.’

Although he would ‘prefer to see services inflation slightly lower’, the ECB had no reason to ‘want to rush to achieve our target’, he said.

Makhlouf, who said he ‘personally’ believed in the ECB’s meeting-by-meeting approach to setting monetary policy, called it ‘reasonable to assume that we’re on this downward trajectory’ in terms of interest rates, independent of what the ECB did in December, if anything.

Asked by Econostream whether he shared the optimism of some colleagues that the updated macroeconomic projections to be released this month would show 2% inflation reached as early as 1Q of next year, Makhlouf reiterated his confidence in the effectiveness of monetary policy and that the ECB was ‘on the right track’ but played down the importance of the forecasts.

‘I don’t myself use the projections as some sort of absolutely predictive, definitive decision-making tool’, he said. ‘I treat the projections as something that informs my judgment in my decision-making.’

Inflation was unlikely to be seen increasing, he said, declaring himself ‘confident that we’re going to meet our target next year.’

The exact timing of this was not so important, he suggested. ‘[A]ll of us should just chill out a bit as to whether it’s going to be, you know, in Q1, Q2 or even Q3’, he said.

It would be ‘premature’ to try to draw conclusions for decision-making purposes about the potential impact of policies of US President-elect Donald Trump, he said.

‘The fragmentation of the global economy did not start this year, he said. ‘It’s unlikely to conclude next year.’