Exclusive: ECB’s Centeno: Don’t See Any Reason for April Pause

26 March 2025

By Marta Vilar – LISBON (Econostream) – There is no reason for the European Central Bank to pause interest rate cuts in the April meeting, according to ECB Governing Council member Mário Centeno.

In an interview with Econostream on March 20 (transcript here), Centeno, who heads the Banco de Portugal, said that the ECB’s baseline scenario ‘incorporates a trajectory of interest rate reductions that is not yet completed’.

Economic weakness and neutral rate estimates argued for more cuts, while increased uncertainty meant that ‘we could need to go slower, but we might also need to go faster’, he said.

There was no reason to deviate from the rate path incorporated in the ECB’s March projections, given the negative impact on growth and inflation likely to stem from a weaker US economy and labour market as well as from US President Donald Trump’s policies, he said.

Asked if ‘deviating from the current rate path’ meant pausing interest rate cuts, Centeno replied ‘[e]xactly, I do not see the case for pausing sooner than previously expected.’

‘The most recent forecasts do not tell us to pause in April’, he said. ‘We may need new projections to pause.’

A stronger euro was not inflationary, he said, while energy prices had been declining recently.

‘I don't see any strength in the European economy recently that could materially change my evaluation of what is going to happen in the next few quarters’, he said. ‘I don’t see reasons to change the path that we were following.’

More cuts were necessary due to the weakness of the economy, as downside risks still dominated, according to Centeno.

‘I am not sure that being at neutral will be enough to sustain inflation at 2% due to the current weakness of the economy and the threats it faces’, he said.

There were doubts as to how the expected slowdown of wages would contribute to the envisaged recovery of consumption, he said.

That rates should be cut further to mitigate unintended tightening associated with the recent surge in European bond yields was ‘a fair reasoning’, he said.

Regarding the inflationary effect of higher defence spending, Centeno said an increase in such expenditures was unlikely to spur price pressures.

‘These are very specific sectorial expenditures; I don't expect them to translate into HICP’, he said.

Monthly inflation data, wage growth and sentiment indicators were important data sets for the next policy decision, he said.

Asked how far current interest rates were from the point of no longer being restrictive, Centeno said that for this determination he needed to see ‘a dynamic in demand that we still are not seeing, especially coming from investment, crucial for sustainable growth.’

The direction of interest rates was clear, he said, and the ECB should get to a level of interest rates that would allow inflation to reach 2% in the medium term ‘sooner rather than later’.

It was hard to determine whether the ECB was behind the curve due to high uncertainty, he said.

‘I think we are approaching a moment in which we can better evaluate whether we are already in neutral territory or not’, he said.

Regarding his previous estimate of the neutral rate between 1.5% and 2%, Centeno said he had ‘no reason to change my assessment on that.’

There were risks to inflation on both the upside and the downside, he said, but the latter outweighed the former.

‘This is mainly because we don't have an economy that is compatible with inflation above 2%’, he said. ‘If external factors push inflation up, we may see a further weakness in the economy, which will automatically bring inflation down.’

The ECB could probably avoid returning to the pre-Covid low inflation environment, he said, but in order to prevent that from happening it had to lower rates ‘closer to 2% sooner rather than later’.