Exclusive: ECB’s Šimkus Hints at December Rate Cut, Says Santa May Come “With Scissors”

2 September 2025

By David Barwick – VILNIUS (Econostream) – Further European Central Bank policy easing is probably more a question of when, not if, according to ECB Governing Council member Gediminas Šimkus.

In an interview with Econostream (transcript here) on Monday, Šimkus, who heads the Bank of Lithuania, suggested that another interest rate cut could occur in December but, depending on incoming information, might even come up for discussion at the Council’s October gathering.

“Our current stance very much fits the situation,” he said. “It strikes a careful balance between consolidating the disinflation process and avoiding undue tightening that would needlessly hurt activity. But … it is important to note that a lot of forces are currently working in the direction of lower inflation.”

Geopolitical tensions, the potential for tariffs to encourage imports from Asia and the euro’s strengthening were just “some of the forces that point to potentially lower future inflation,” he said.

“So, our monetary policy stance fits the moment well in September, but I would not be surprised if Santa Claus comes with scissors – but just for snipping, not for slashing,” he said.

Though he suggested December as a plausible moment for a 25bp cut, Šimkus underlined that the timing of further easing was wide open once next week’s pause was out of the way.

It was “more true than not” that a further reduction was a matter of when rather than if, he said, but the uncertainty of the current environment made its arrival unpredictable.

Asked if October could bring a cut, he observed that last week’s ECB Consumer Expectations Survey indicated increased pessimism about nominal income growth, economic activity and employment.

“I’m not saying that this would be reason for us to act, but additional negative information might lead us to discuss a cut again in October,” he said. “For example, if the medium-term projections show inflation below 2% and we also get more negative economic data.”

Nonetheless, Šimkus cautioned against preoccupation with longer-term projections under the current circumstances, urging policymakers to concentrate more on overarching developments rather than on “point-in-time targets.”

“At the moment, our best effort suggests that we’ll have 1.6% inflation on average next year and then 2% the year after,” he said. “But I’m not naïve enough to think that this is a promise. The bigger picture – considering wage developments, core measures, expectations and everything else – is that we are largely on track but surrounded by risks. And some of these risks are materializing.”

The trade deal between Europe and the US had not changed the outlook significantly, he said. Risks overall remained tilted to the downside for both inflation and growth, he said, suggesting that June’s projections would require only minor adjustment next week to reflect “somewhat slower GDP growth and potentially a marginal revision of inflation.”