ECB’s de Guindos: "The Current Level of Interest Rates Is Appropriate"

29 August 2025

By Marta Vilar – PAMPLONA, Spain (Econostream) – European Central Bank Vice President Luis de Guindos said on Friday that current interest rates remain “appropriate,” and cautioned that the disinflationary effects of globalization seen in past years may be fading.

In a speech at the Cursos Europeos de Verano in Pamplona, de Guindos said that “the current level of interest rates is appropriate given the main factors of the direction of monetary policy.”

According to de Guindos, these key factors were the evolution of inflation, which he described as “positive,” macroeconomic projections pointing to inflation remaining near the ECB’s target, and the transmission of monetary policy, which he noted was effective despite some delay.

“However, uncertainty remains high. That is why the European Central Bank is very cautious in its communication,” he said.

The ECB was data-dependent, made decisions meeting-by-meeting, and did not have a predetermined path for interest rates, he said.

“Still, it is important to recall what I said earlier: the longer-term effects matter,” he added. “The globalization process that contributed to global disinflation 15–20 years ago will no longer have the same intensity, so we may face new structural factors beyond cyclical developments.”

GDP growth data for Q1 and Q2 had to be taken with caution, as it was somehow “distorted” by Ireland’s contribution and frontloading due to trade negotiations, he said.

The U.S.-EU trade agreement left a “bittersweet taste” for de Guindos. The positive side was that the situation had not escalated into a trade war and that uncertainty declined, he said.

“On the less positive side, the U.S. will ultimately increase its average effective tariff on European products to just over 14%, up from a much more favorable situation previously, when tariffs were below 3%,” he said.

Uncertainty also remained with respect to some sectors, like the automobile industry and services, he said.

The agreement “was the best outcome achievable among a series of difficult negotiations for Europe” and could be seen as “the lesser evil,” he said.

The China-U.S. deal could also impact Europe’s economy, according to de Guindos, who mentioned trade redirection as a threat.

“On inflation, we have good news; headline inflation is at 2%, and core inflation at 2.3%,” he said. “Services inflation in the euro area is behaving well, wage developments are adjusting, which had been one of our concerns.”

Tariffs should be regarded as “inflationary” since they functioned like a tax on goods, but over the longer term the fall in demand they could create could “more than offset their initial inflationary impact,” he said.