ECB Must Be Open for Interest Rate Cut in March, Centeno Says
(Bloomberg) — The European Central Bank must be ready to consider lowering borrowing costs next month if data call for it, even if that’s only a low-probability event, according to Governing Council member Mario Centeno.
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“March is the date when we have the largest amount of new data in front of us — some data may tell us to discuss interest rate cuts as soon as March,” the Portuguese central bank chief said in an interview. “I’m not saying that it is likely, but we have to be open.”
Speaking in Ghent, Belgium, where he’s attending a meeting of European finance ministers and central bank governors, Centento said that “if we are truly data-dependent and if we decide meeting by meeting all possibilities are open. We need to look at the data.”
Policymakers meet again in less than two weeks with new ECB’s projections on the table. Although most of them seem to be in favor of reducing rates in June, some don’t exclude moving sooner — helping to keep investor bets on earlier easing alive.
“Inflation has been consistently below our forecasts in recent months — and growth as well,” Centeno said. “This is a sign that the downside risks that we identified in the last two forecasts have materialized,” he said. “Inflation may even be below 2% — even if temporarily — at some point this year and then it will fluctuate around 2% — which is what we want.”
Centeno also said:
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“We now have a first quarter of 2024 that doesn’t look like to be of growth, yet. So we are postponing the recovery a little bit. More positive prospects are backed by an expectation of lower interest rates.”
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“We expect some recovery in real wages and I would say that this is a good sign. We should not be disturbed by that. In my view wage growth will still be compatible with price stability, as it was the case so far. Real wages fell by as much as 8% in the euro area.”
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“I don’t think it is equal to hold a little bit longer and then going faster down, because you are playing a gamble here with the labor market, or moving more gradually and slower. Demand is low and the economy is not growing. If the economy doesn’t grow, prices will not go up.”
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“We don’t have to rush to a neutral stance as long as the path is sustained and predictable and we are delivering on our job.”
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