(Bloomberg) -- Reducing interest rates in October wouldn’t mean that the European Central Bank is certain to do so again at its final meeting of the year, according to Governing Council member Bostjan Vasle.
“Even if the ECB happens to decide to lower rates next week, that wouldn’t automatically mean another cut is coming in December,” he told Bloomberg, describing a cut this month as “an option.”
The comments could be seen as pushback against investor bets that the ECB will lower its deposit rate six times by the end of 2025 — including at the next two meetings — bringing it to 2% from 3.5% now. He warned that while such wagers may be a natural reaction to Europe’s stuttering economy, officials won’t be bullied into any course of action.
“The markets aren’t dictating our moves,” said the Slovenian official, whose central bank is hosting the ECB’s Oct. 16-17 gathering. “However they are valuable information to our deliberations.”
Markets and analysts now expect quicker monetary easing after business surveys showed a marked deterioration in the euro zone’s 20-nation economy and inflation dipped below the 2% target. Officials have indicated that an October step is likely, though several stress that the battle to tame the region’s historic spike in prices isn’t won yet.
Inflation risks are abating, according to Vasle, but he still sees some pockets of uncertainty — namely in the labor market, services prices and geopolitics. September’s reading of 1.8% — the lowest since June 2021 — was due in part to one-off effects, and a temporary uptick is likely over the coming months, he cautioned.
In remarks published earlier Tuesday, ECB Executive Board member Frank Elderson said recent data suggest that downside risks to the economy are “already materializing.” Policymakers “will need to carefully assess whether this has any implications for our inflation outlook,” he told Slovenia’s Delo newspaper.
Bundesbank President Joachim Nagel, meanwhile, said he’s open to discussing an October rate cut, Latvian central-bank chief Martins Kazaks told reporters in Riga that while data point to such a step, inflation is not yet defeated, and Portugal’s Mario Centeno warned against outsized rate moves and called for “gradualism.”
Looking ahead, Vasle said the direction of monetary policy is clear — should the ECB’s baseline scenario materialize.
“The main question is the dynamic of rate cuts,” Vasle said. He expects borrowing costs to be lowered to neutral levels that neither constrict nor stimulate the economy by end-2025.
That’s more than other officials are committing to, with most simply saying that for now the ECB needs to reduce the level of restrictiveness.
--With assistance from Mark Schroers, James Hirai, Aaron Eglitis, Joao Lima and Henrique Almeida.
(Updates with Centeno in eighth paragraph.)
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