ECB Insight: de Guindos Highlights Potential for Further Policy Easing to Be Needed

5 May 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Saturday seemed to encourage expectations of further easing and in any case did not in the least push back against these.

In an interview published on Saturday in Austrian daily Die Presse, de Guindos was asked how long ECB interest rate cuts would continue. He responded that this would depend on the evolution of inflation, but that ‘we can be optimistic’, given projections showing inflation near target as of end-2025.

The answer could be seen as ambiguous to the extent that once the ECB is confident of having restored price stability, this would naturally call into question the need for yet more rate cuts, at least if the projections showing 2% inflation achieved did not incorporate additional easing.

In any case, as de Guindos readily confirms later in the interview, the March projections have been outdated since the announcement on April 2 of US tariffs.

We thus think that the more important aspect of de Guindos’ response is what he says next, namely: ‘Moreover, inflation continues to fall thanks to three additional factors.’

Those factors, including the stronger euro, weaker energy and commodity prices and the prospect of greater-than-expected wage moderation, ‘contribute to bringing inflation further down’, he said, and ‘this is the decisive factor in whether we continue to lower interest rates.’

It would thus seem that de Guindos is essentially saying that he sees an elevated potential for inflation not only to reach the ECB’s target but to undershoot it, which would naturally open the door to further rate cuts.

This is even before he turns to the subject of growth, in which context he notes that US trade policy has led to a deterioration of the outlook, saying that related uncertainty ‘has weighed on economic activity and is likely to delay investment and consumption.’

‘We already pointed to such downside risks in our March projections’, he continued. ‘The risks are now materialising.’

Clearly, de Guindos is referring to an unfolding situation that will have implications for future monetary policy decisions. Nothing he says suggests that he takes a very optimistic view – while a recession is unlikely, growth would fall clearly short of potential, according to de Guindos.

He doesn’t add, and doesn’t need to, that growth ‘well below potential’ would tend to foster disinflation and be a classic component of an economic environment in which a central bank loosens the monetary reins.

And that is without a fully fledged trade conflict, which he warns ‘would have a very serious impact on growth.’

There was plenty of room, either unexploited or unpublished, to draw de Guindos out on his reaction to the very first question of the interview regarding how long rate cuts would last. Under the currently prevailing uncertainty we can imagine that de Guindos would have been reluctant to appear too sure of anything.

As it is, we think his answer pointed clearly enough in the direction of a set of circumstances under which the ECB might need to ease beyond June and thus to below 2%.