Exclusive: ECB’s Šimkus: Agree With Expectations That There May Be Three More Cuts by End-2025

20 February 2025

By David Barwick – VILNIUS (Econostream) – Market expectations of another three ECB interest rate cuts this year are reasonable, even if high uncertainty makes the precise timing of moves post-March an open question, according to European Central Bank Governing Council member Gediminas Šimkus.

In an interview with Econostream (transcript here) on Tuesday, Šimkus, who heads the Bank of Lithuania, said that even with the widely expected March cut, which he readily endorsed, the ECB’s policy stance would remain restrictive. There was however no need for such restrictiveness, he said.

The principle that the direction of travel is clear was thus valid, he said.

‘Generally, I agree with market expectations that there might be another three cuts between now and the end of 2025’, he said. Markets were obliged to attach specific timing to these even under extreme uncertainty, whereas policymakers’ job was to make the appropriate decision when the time came, he said.

‘Therefore, even if I have an expectation of what will happen in March, which is quite soon, I have no problem saying that I don’t know the exact shape of the interest rate curve further in the future’, he said.

‘But as I said, the direction of travel is clear in a context of weak economic developments and with data showing that we’ve hit our medium-term inflation target’, he continued. ‘So, I don't see any good reason for policy to stay anywhere far from the interval I described as nominal neutral, which is around 2%. Policy needs to return to this interval around 2%.’

The highly uncertain environment should not obscure the facts on the ground, he said. Economic activity was ‘sluggish’ and GDP growth would probably be revised down next month yet again, while wage pressures were abating and a durable return to around 2% inflation was nigh, he said.

If inflation converges to the ECB’s target, restrictiveness would ‘obviously not’ be needed, he said. However, interest rates were currently restrictive and would still be even after being cut again next month, he said.

‘We are not able to be precise about the pace and the path of rate cuts, but it's clear that we are moving interest rates downwards, and I don't see any good reason not to do another rate cut in March’, he said. ‘We’ll see about April and June. But overall, the direction of travel is clear, and for me, the next move is clear.’

The most recent information was broadly in line with the ECB’s December projections, he said. Still, they suggested a need to revisit the outlook for growth, he said.

‘Some time ago we tended to think that we're going to see some sort of recovery in 2025, but it is clearer and clearer that growth in 2025 might instead resemble the weak growth of 2024 rather than being something that can be called a genuine recovery’, he said.

Despite the absence of fresh macroeconomic projections at the Governing Council’s April meeting, policymakers could expect to have ‘more clarity about the things that make the outlook so uncertain at this moment, such as US trade policy’, he said.

‘This will help streamline our thinking about what our next steps should be’, he continued. ‘And once again, we don’t need the restrictiveness of our current policy stance, given everything I already mentioned. So, the direction of travel is clear, even if the high uncertainty forces me to be more cautious about our decisions in April and June.’