ECB’s chief economist warns of too-low inflation if interest rates stay high

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Inflation in the eurozone could fall below the European Central Bank’s 2 percent target unless policymakers continue to cut interest rates, its chief economist Philip Lane warned.

In an interview With the Austrian daily Der Standard published on Monday, Lane said that too little rather than too much inflation is now a risk that rate setters need to take into account.

Borrowing costs “should not remain too high for too long” because growth could be so weak that “inflation could fall below the target”, Lane said. Like high rates, he insists Inflation“This is also undesirable”.

Lane’s comments highlight a growing transatlantic gap on monetary policy as the Federal Reserve has since switched to a more hawkish tone. Inflation has risen in the United States And strong job growth exceeded expectations.

Investors hope that ECB After policymakers cut the benchmark deposit rate from 4 to 3 percent in four steps starting in June, they will continue to cut the cost of borrowing by quarter-points until they reach around 2 percent.

On Monday, eurozone bond yields climbed to fresh multi-month highs after Friday’s strong US jobs data, reflecting expectations of higher global borrowing costs. Germany’s benchmark 10-year bond yield rose 3 basis points to 2.6 percent, the highest since July.

Olli Rehan, the governor of Finland’s central bank and a member of the ECB’s governing council, told Bloomberg TV that further rate cuts are needed in the euro zone regardless of the Fed’s actions.

“[The ECB] Not the 13th Federal District of the Federal Reserve System. We make decisions based on our mandate, which is price stability in the euro area,” he said in an interview in Hong Kong.

Lane said the ECB will have to strike a “middle ground of not being too aggressive or too cautious” in 2025 as persistently high inflation in the services sector, which continued at 4 percent in December, continues to pose risks to price stability. .

“If interest rates fall too quickly, it will be difficult to bring service inflation under control,” Lane told Der Standard.

But the chief economist warned more bluntly than in his previous public statements that weak growth is a threat to price stability.

“We also need to ensure that the economy does not grow too slowly, because then we face a new problem, which is that inflation may stabilize below the target,” he said.

is asked about A recent Financial Times survey While many economists say the ECB has been too slow to cut interest rates, Lane said the central bank’s “primary focus” is on inflation rather than growth. However, he added that “growth is a fundamental driver of inflation dynamics”.

But he stressed that policymakers “do not see the type of recessionary risk that would call for a dramatic acceleration in monetary easing,” an indication that the larger, half-a-percentage-point rate cut that some economists had hoped for is unlikely.