ECB’s Patsalides: ‘Approach to Rate Cuts Must Be Gradual and Data-Driven’

21 November 2024

ECB’s Patsalides: ‘Approach to Rate Cuts Must Be Gradual and Data-Driven’
Christodoulos Patsalides, governor of the Central Bank of Cyprus, at the European Central Bank Governing Council meeting in Ljubljana, on October 17, 2024. Photo by Adrian Petty/ECB under CC BY-NC-ND 2.0.

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Christodoulos Patsalides on Thursday said that the ECB should cut interest rates only gradually even with economic growth feeble.

In remarks at the Economist 20th Annual Cyprus Summit, Patsalides, who heads the Central Bank of Cyprus, said, ‘While growth in the euro area economy has been anaemic for some time now, the approach to rate cuts must be gradual and data-driven.’

There remained upside inflation risks, he explained. The outlook for energy prices was very uncertain, and services inflation was proving persistently elevated, he said.

‘Moreover, trade tensions are rising’, he said. ‘If trade restrictions materialise, the outcome may be inflationary, recessionary, or worse, stagflationary.’

‘If incoming data and new projections in December confirm our baseline scenario, there will be room to continue lowering rates at a steady pace and magnitude’, he said.

It was critical neither to ease policy too quickly and ‘risk reigniting inflationary pressures’ nor to be too slow about it and needlessly compromise growth and market confidence, he said.

‘At this juncture, monetary policy is a balancing act, and these considerations confirm that maintaining optionality without any predefined path is the prudent avenue for our policy calibration’, he said.